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In search of rules to curb conflict-mineral trade in Europe
“We cannot be fully responsible for all the misery in the world”
iK.T. Vita 5875528
Master thesis in International and European Law; Public International Law 10 EC
Filing date final version 31 July 2015 Nominated supervisors
First reader: Prof. Maarten van der Heijer Second reader: Prof. James H. Mathis
2 | P a g e This work is dedicated to my parents Gabriel Vita and Reth Tusamba. I am inspired by their courage to flee their beloved country, which was destroyed by a civil war financed with ‘blood
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Table of Contents
IntroductionIn search of rules to curb conflict-mineral trade in Europe ... 1
Dedication ... 2
Table of Contents ... 3
Introduction ... 4
Chapter I Democratic Republic of the Congo ... 6
1.1 Historical background ... 6
1.2. The First Congo War 1996-1997 ... 9
1.3. The Second Congo War 1998-2003 ... 9
1.4. Never-ending conflict ... 12
Chapter II The EU draft regulation on conflict minerals ... 14
2.1. Law in the making: background ... 14
2.2. Law in the making: content ... 15
2.3. Law in the making: voluntary or mandatory, who decides? ... 16
2.4. Existing EU initiatives on natural resources ... 18
Chapter III International standards for corporate social responsibility ... 19
3.1. The Organization for Economic Co-operation and Development Guidelines ... 19
3.2. UN-based principles for business and human rights (Global Compact) ... 21
3.3. United Nations Guiding Principles on Business and Human Rights ... 23
3.4. EU goes deeper in the supply chain ... 24
Chapter IV Regional initiatives on corporate social responsibility and conflict minerals ... 27
4.1. The Dodd Frank Wall Street Reform and Consumer Protection Act ... 27
(Dodd-Frank Act) ... 27
4.2 ICGLR Regional initiative on natural resources (RINR) ... 30
Chapter VI Conclusion ... 32
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Introduction
On 5 March 2014 the High Representative of the EU for Foreign Affairs and Security Policy Catherine Ashton and the European Union (EU) Trade Commissioner Karel de Gucht proposed an integrated EU approach to stop profits from trading in minerals that are being used to fund armed conflict.1 The Commission proposed a draft regulation setting up an EU system of self-certification for importers of tin, tantalum, tungsten and gold who choose to import responsibly into the Union. This self-certification requires EU importers of these metals and their ores to exercise ‘due diligence’ by monitoring and administering their purchases and sales in line with the Organization for Economic Cooperation and Development (OECD) Due Diligence Guidance. The proposed Regulation is accompanied by a ‘Communication’, in which the EU presents its overall comprehensive foreign policy approach on how to eliminate the link between conflict and the trade in minerals extracted in affected areas like the Democratic Republic of the Congo (DRC).
This approach is in line with several international initiatives on conflict minerals. It began with international reports showing that crimes committed in eastern Congo are directly linked to control of resource extraction sites.2 Gold and minerals such as tin and coltan from mines in the DRC are fuelling a conflict that has resulted in more than 5 million deaths, thousands of rapes and over 2.9 million internally displaced persons.3 These metals end up in mobile phones and other devices used by consumers in Europe and the rest of the world.
This thesis will focus on the effectiveness of the EU draft proposal and its knock-on effect on the trade in conflict minerals in the DRC. This will be achieved through an in-depth analysis of the concept of due diligence and a comparison between the notions of ‘voluntary’ and ‘mandatory’ legislation. Further, these proposed legislative frameworks will be compared to
1 European Commission, press release, ‘EU proposes responsible trading strategy for minerals from conflict
zones’(2014) <http://europa.eu/rapid/press-release_IP-14-218_en.htm> accessed 2 April 2014
2
Amnesty International report, ‘Mass rapes in walikale still a need for protection and justice in eastern Congo’ [2010]. Human rights, report, ‘Democratic Republic of Congo: The Curse of Gold’ [2005] 127 and that “those who direct mining operations, sell diamonds or gold extracted in these conditions, launder the dirty money or provide weapons could also be authors of the crimes, even if they are based in other countries
3
Amnesty international, report, ‘Mining and human rights in Katanga: Democratic Republic of the Congo’( 2013)
5 | P a g e the US Dodd Frank Act, which in essence makes it mandatory for American companies to disclose their supply chain for metals.
The problem seems to be that the current EU legislative framework requires voluntary notification. By their very nature, companies are designed to generate profits and therefore they are more inclined to make corporate or transaction decisions based on the need to make a profit rather than the social consequences their dealings have in other continents. And the voluntary nature of the notification requirement does not provide a sanction for trading in conflict minerals or an incentive for companies to avoid doing so.
A mandatory due diligence test like the one used in the Dodd-Frank Act is believed by many, including the European Parliament, to be more effective.4 Section 1502 of the Dodd-Frank Act requires in companies to disclose whether their products rely on conflict mineral (tin, tantalum, tungsten, and gold) from the DRC and bordering countries, including the Central African Republic and South Sudan.5
The question is whether the European Union should have a legal framework with mandatory rules on conflict minerals. The recent EU approach on conflict minerals is believed to be insufficient because it is of a voluntary nature and as such does not impede companies from profiting from trade in conflict minerals. The European Parliament and different NGOs working on this issue are convinced that the EU approach to corporate social responsibility, which involves asking companies not to engage with human rights violations, cannot be laid down in voluntary guidelines.6
4 European Parliament, ‘Resolution on failures in protection of human rights and justice in the democratic
Republic of Congo’ P7-TA (2010) 0350 Final < www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2010-0350+0+DOC+XML+V0//EN> accessed on 31 may 2015
European Parliament, ‘Resolution on the Democratic Republic and the mass rapes in the province of South kivu’ P7-TA (2011) 0340: ‘calls on the Commission to come forward with a legislative proposal on conflict minerals which fuel the war and mass rape in the DRC, with a view to combating impunity, similar to the Dodd-Frank Act (especially section 1502), which imposes new reporting requirement on manufactured products for which ‘conflict minerals’ are used’.
5 The Dodd Frank Wall Street Reform and Consumer Protection Act 2010 section 1502<
http://www.cftc.gov/lawregulation/doddfrankact/index.htm> accessed 2 April 2014
6
OECD due diligence guidance for responsible Supply chain of minerals from conflict affected and High-Risk Areas (2013) < http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf.> accessed 31 May 2015
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Chapter I Democratic Republic of the Congo
This chapter provides background information on the Democratic Republic of the Congo (DRC). Beginning with the historical exploitation of Congo under Belgium control, the chapter will conclude with the different wars and conflicts that occurred after the independence in 1960. In this overview the exploitation of Congo’s natural resources is especially important. Further, the most relevant armed forces in Congo and their violations of humanitarian or human rights will be listed. This chapter aims to analyse the damage that has been done to the DRC and its population and to understand the current situation. With this analysis we are attempting to determine if there is a link between the conflict and human right abuses and Congo’s minerals. This connection has been the basis of the EU draft regulation on conflict minerals.
1.1 Historical background
Congo is a country of 2,345 million square kilometres, which is comparable with the size of the five largest member states of the European Union (EU). In 2013 it had an estimated population of 67.51 million.7 The capital city Kinshasa is situated in the south west of the country. The name Congo comes from the Congo River, the greatest and famous river in the country. A river has been sailed by many explorers, missionaries, armies and exploiters each with their own expectations of the journey.
One remarkable journey is that of the Belgian King Leopold II. Congo was his personal property from 1885 until it became a Belgian Colony in 1908.8 During his reign he ruled Congo as a private enterprise, and its natural resources such as rubber quenched the thirst of the industrial revolution. The exploitation of Congo’s natural resources was accompanied with human rights violations including forced labour, torture, mutilations and unlawful killings, triggering one of the first international human rights campaigns.9 Unfortunately, even after the Belgian government took over the control of Congo, the government’s activities mainly focussed on the exploitation of natural resources, which never benefitted the Congolese people.10
7 World Bank, ‘Congo’s database’ <http://data.worldbank.org/country/congo-dem-rep> accessed 31 May 2015 8 David van Reybrouck, Congo een geschiedenis (De bezige bij 2010) 21
9 Jason K Stearns, Dancing in the glory of monsters: The collapse of the Congo and the great war of Africa (
PublicAffairs2011) 7
7 | P a g e On 30 June 1960 Congo celebrated its independence from Belgium. Its first president, Joseph Kasavubu, was removed by means of a military coup led by Joseph-Désiré Mobutu, a journalist and chief-of-staff of the Congolese army. Mobutu’s dictatorship lasted for 32 years. He was popular in the beginning as he was seen as the founding father of the Authenticité (Zairianisation), a state ideology focussed on breaking with the colonial past. He changed the name of the country in Zaire.11 But when he started the state-owned company “La Générale des Carrières et Mines” (Gécamines), he actually just renamed “Union Minière” the Belgian colonial mine company.12 Despite all his efforts, when it came to natural resources, Mobutu was unable to break with the past; the Congolese population continued to suffer and the economy collapsed.13
Before the next ruler of Zaire came to power, an event occurred that would brutally shape the future of the country and add another blood cover on its natural resources. In 1994, exactly 21 years ago, half a million Hutus fled from the genocide and civil war in neighbouring Rwanda, seeking refuge in the Kivu region in Eastern Congo.
The genocide in Rwanda finds its source in the ‘divide and rule’ policy used by its former colonial powers, first Germany and later Belgium, who received the colony after Germany was defeated in the Second World War.14 This divide and rule policy created two groups in Rwanda. On the one side were the Tutsi, who were seen by Western countries as superior and used as co-rulers of the colony. One the other side were the Hutus, who became second-class citizens. According the Western powers, they were more similar to the other Bantu groups in central Africa.
The result of the division would be a long-lasting antagonism and civil wars in Rwanda. In 1994 the Hutu elite, who found themselves to be more legitimate rulers because of their past suffering, started to massacre their more numerous Tutsi co-habitants. The Rwandan Patriotic Front (RFP) was a Tutsi-led rebellion that mainly included Tutsi exiles from Uganda. It was led by Paul Kagame,15 who helped Joweri Museveni16 to take power in Uganda. Upon return, with the help of Uganda the RPF manoeuvred itself behind the scene of the genocide and the
11 Kevin C Dunn, Imagining the Congo: The International Relations of Identity ( Palgrave Macmillan 2003) 106 12 Ibid 124
13
Ibid 140: ‘’Economically, Zaïre was officially in shambles. Its formal economy shrank more than 40 percent between 1988 and 1995. Its foreign debt in 1997 was around $14 billion. ‘’
14 Dale C Tatum, Genocide at the dawn of the twenty-first century: Rwanda, Bosnia, Kosovo and Darfur
(Political & International Studies Collection, Palgrave Macmillan 2010) 40
15
Paul Kagame, the president of The Republic of Rwanda since 2000
8 | P a g e killing of the former Rwandan president Juvenal Habyariman, and came to power in Rwanda. This shift in the country’s government and the fear of revenge by the Tutsis caused Hutus to flee the country. An estimated 1.2 million Hutu refugees entered Congo, including the defeated Rwandan armed forces (Forces Armées Rwandaises, FAR) and the Interahamwe the Hutu militia group that was guilty of initiating the genocide.17
It would not take long for a Tutsi-led Rwanda to come after the ‘génocidaires’18 in Congo. This revenge led to another genocide, now of Hutus in the refugee camps in eastern Congo. An estimated of 232,000 Hutu refugees were killed; most of them were women and children.19 But to enter another sovereign country Rwanda needed a Trojan horse; thus the Alliance of Democratic Forces for the Liberation of Congo-Zaire (AFDL) was born in 1996. Laurent-Désire Kabila presented himself as the great liberator of Congo. This is demonstrated by the fact that there are still statutes of him in Goma, in eastern Congo. Amidst the complexity of a failing state, the weakening of Mobutu’s power and the unrest in eastern Congo, Kabila ‘the father’ who was the Congolese leader of the AFDL guided the different resistance movements against Mobutu.20 With support from the Tutsi regimes in Rwanda and Uganda he started his conquest, which ended on 17 May 1997 in the capital city. As self-proclaimed president of his Democratic Republic of Congo, he did not treat his former allies well. In 1998 his former Tutsi allies started a rebellion against him. Unable to stop this rebellion, he is murdered in 2001.
Joseph, Kabila’s son, assumed power after his father’s death as if the Democratic Republic of Congo was a monarchy. In 2006 however he is officially elected president of the Democratic Republic of Congo.21 Along with his position, he also inherited the war in Congo.
Now in 2015, it is clear that the RDC is not stable. Many use the term ‘failing state’ when referring to it.22 To properly evaluate the blood-covered link between the exploitation of Congo’s natural resources and the ongoing conflict, it is necessary to go back to 1994 and analyse the country’s wars.
17
UNHCR, report, ‘The State of the World Refugees 2000: Fifty Years of Humanitarian Action-Chapter 10: The Rwandan Genocide and its aftermath [2000] 246 < www.unhcr.org > accessed 31 May 2015
18 Name given to the Hutu’s who committed genocide in Rwanda.
19 Kisangani Emizet and Léonce Ndikumana, ‘The economics of civil war: The case of the democratic republic
of Congo’ (2003)Political economy research institute (PERI) working paper, 38 <www.scholarworks.umass.edu/peri/workingpapers> accessed 31 May 2015
20 Rudi Vranckx, De ontdekking van Congo (Meulenhoff Manteau 2010) 359 21 Ibid 360
22
Ministerie van Buitenlandse Zaken, ‘Algemeen ambtsbericht: Congo’ (2014) < www.rijksoverheid.nl/- documenten-2015-ambtsbericht-democratische-republiek-congo> accessed May 31 2015
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1.2. The First Congo War 1996-1997
The genocide in Rwanda in 1994 was the beginning of the end of Mobutu’s reign in Congo. The presence of the Hutu refugees in Congo-Zaire was a threat to security in Rwanda. Among the refugees there were armed Hutu soldiers and Interahamwe who committed the genocide in Rwanda. Not expecting the international community to react, Rwanda took matters into its own hands. After a series of attacks in 1995 against refugee camps in Zaire, Rwanda invaded Congo in October 1996. It used the Congolese rebellion group, known as the Alliance of Democratic Forces for the Liberation of Congo-Zaire (AFDL), led by Laurent Desire Kabila as its Trojan horse. It was clearly a Rwandan invasion because the AFDL’s targets were the Hutu refugee camps in eastern Congo and Rwandan officials provided the AFDL with equipment, training and bases.23 The next step of the AFDL and its allies was overthrowing Mobutu. In less than eight months this mission was accomplished.
In the First Congo War the main armed groups involved were the AFDL, the Mai Mai and the Banyamulenge. The Mai Mai is a network of Congolese rebels who oppose foreign occupation. The ‘liberators’ received a lot of support, foreign soldiers and financial support came primarily from Rwanda and Uganda. Other countries, including Burundi, Zambia, Zimbabwe and Ethiopia and Angola, were also involved in the great African war.24 These countries helped the rebels with financial and military support for different reasons. Some were clearly trying to make deals with the soon-to-be Congolese leaders.
For example, South Africa, which is home to the diamond giant DeBeers, was not ready to give up its diamond market in Congo. When it became clear that the AFDL was the new chief in town, the South African company and other foreign companies such as American Minerals Fields and Lundin were ready to make deals with the FDLR25. Those deals, worth over $70 million in total, funded a great part of the AFDL’s military efforts.26
1.3. The Second Congo War 1998-2003
When Laurent-Désire Kabila took over power, he turned on his allies and ordered them to leave the country.27 His Rwandan and Ugandan partners were not pleased and started a war
23 Stearns 43 24 Ibid [19] 38 25 Ibid [11] 154 26 Stearns 287 27
Christoper R Cook, Diamonds and Genocide: American, British, and French Press Coverage of the Second
10 | P a g e against Kabila in August 1998, beginning the Second Congo War.28 This war (also called the Great African War) led to more than five million deaths in Congo and almost all of Congo’s neighbouring countries were involved in the conflict.29
A new rebellion called the Rassamblement Congolais pour la Democratie (RCD) was created to fight Kabila. It was again a Rwanda- and Uganda-led rebellion working in partnership with Congolese opposition leaders. The RCD controlled eastern Congo, while Kabila maintained control over the west. But in 1999 the RCD split into two factions: RCD-Goma supported by Rwanda and RCD-ML backed by Uganda.30 This split shows that Rwanda and Uganda were starting to focus on new goals. They began to fight each other over control of the mineral trade in Congo. Thus the war became more about doing business in Congo.
The United Nations Panel of Experts has reported on the activities of the parties involved in the Second Congo War, showing a clear link between that war and the exploitation of Congo’s minerals.31
28 Ibid [26] 1
29 Lar Huening, Explaining the Congo wars (University of Sheffield 2010) 8 30 The prosecutor v. Thomas Lubanga Dyilo[2006] ICC 01-04-01-06 Para78 31
United Nations, report, ‘Report of the panel of experts on the illegal exploitation of natural resources and other forms of wealth of the Democratic Republic of the Congo’ (2001) UN Doc S/2001/357
Armed Group
Minerals
Diamond Gold Coltan/ Tantalum
Tin Tungsten Copper Cobalt
Pro-government forces DRC army X X X Zimbabwean army X Angolan army X Mai-Mai X X X X Anti-government forces Rwandan army X X X X X Ugandan army X X X X X RCD-Goma X X X X X RCD-ML X X X X X MLC X X X
11 | P a g e The UN Panel of Experts’ report accuses a number of parties, including corporations, of illegal exploitations of natural resources in Congo.32 There were large-scale, systematic exploitations and looting of the minerals of Congo.33 The participants included countries, corporations, individual persons and armed groups. Directly or indirectly they were funding the war by dealing in Congo’s minerals. Some did so directly by paying taxes to rebels.34 Those indirectly involved were corporations who facilitated the transportation of minerals, avoided paying taxes for the minerals in Congo, and exported and imported the minerals from Congo.35 Also connected with the human rights abuses by armed groups in Congo were foreign corporations who gained concessions or contracts from the government in the capital city, such as Zimbabwe with the creation of joint ventures.36
It was unfortunate that the coltan (tantalum) boom happened during the Second Congo War. The Rwandan army and the RCD earned $10 million from coltan mining between 1996 and 2001.37 The RCD exploited coltan and tantalum by creating their own trading company, Sociéte Minière des Grand Lacs (SOMIGL). This Rwanda-based company had an export monopoly on coltan produced in the territory controlled by the RCD rebels.38
Ending the war would mean the fighting parties would lose the profits they were making in Congo. But Rwanda and Uganda were not the only ones doing good business with the RCD. Other rebel groups were also caught up in the illegal exploitation and started to control mines in North and South Kivu (see Table 1).39
32
United Nations, report, ‘Report of the panel of experts on the illegal exploitation of natural resources and other forms of wealth of the Democratic Republic of the Congo’ (2001) UN Doc S/2001/357
33 Ibid 3 34 Ibid 29 35
Ibid 39
36 Ibid 39
37 Marjolein de Ridder, ‘Coltan, Congo and conflict’ (2013) The Hague Centre for strategic studies (HCSS) 59
<http://www.hcss.nl/reports/coltan-congo-and-conflict/125/> accessed 31 May 2015
38
Ibid 58
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1.4. Never-ending conflict
Congo is still at war, and the conflict is focused around the Kivu region, which is full of minerals. Although these resources are not the cause of the conflict, they continue to fuel the conflict. This is mainly because the Congolese army, besides the numerous scattered rebel groups and foreign invaders, continues to exploit, loot and kill its own citizens for personal gain.40 We will now look at the most important events that have occurred since 2003 in this never-ending war.
After the peace negotiations in Lusaka (1999) and Sun City (2002) to end the Second Congo war, a new and transitional government was established in 2003.41 It governed Congo until the presidential elections in 2006.42 As part of the peace deal, the Congolese Army was transformed into the Forces Armées de la République Démocratique du Congo (FARDC). Numerous armed groups fighting in the Second Congo War were incorporated into the FARDC. However, despite all the good intentions of the peace negotiations, the conflict continued on a smaller scale with outbreaks in 2008, 2009, 2011 and 2012.
One deadly outbreak occurred in 2008 when the Congolese and Ugandan army ‘Lighting Thunder’ attacked the Lord’s Resistance Army (LRA), which was guilty of mass killings and rape in Uganda and Sudan. The LRA led by Joseph Kony had revenged itself against the civilians in the Congo, killing 865 civilians and abducting hundreds of children in north-eastern Congo.43
In 2009 the Congolese army led military operations against Les Forces Démocratiques de Liberations du Rwanda (FDLR). This was in collaboration with Rwanda and the UN peacekeepers. During the heavy fighting 1400 civilians were killed, 7000 women and girls were raped, and thousands of people became forced workers for the different fighting groups.44
40 Seth Kaplan, ‘The wrong prescription for the Congo’ [2007] Elsevier Limited, Foreign policy Research
Institute 305
41 Stephen Jackson and Severine Autessere, ‘Narrowed focus: reading the trouble with the Congo’ (2011)
Institute for security studies 96
42 Stearns 299
43 Human Rights Watch, report, ‘The Christmas Massacres: LRA attacks on civilians in Northern Congo’ (2009)
28-30 < http://www.hrw.org/reports/2009/02/16/christmas-massacres-0> accessed 31 May 2015
44
Human Rights Watch, report, ‘Always on the run: The vicious cycle of displacement in Eastern Congo’(2010) 6-7 <www.hrw.org/sites/default/files/reports/drc0910webwcover.pdf> accessed 31 May 2015
13 | P a g e In 2012 another Rwandan-backed rebel group started to cause insecurity problems in eastern Congo. The M23 was formed in April 2012 by ex-CNDP soldiers who were excluded in the 2009 military integration as part of the peace negotiations.45 In November 2012 the M23 rebels invaded Goma in eastern Congo, killing, looting and raping civilians.
The Congolese army fighting the rebels has also been harming its own country’s civilians. For example, there was a mass rape at the end of 2012 in Minova, a city on the border of South and North Kivu.46
It is clear that the conflict in the DRC is not over. Areas in the east are still fragile and easy target for rebel groups with or without the help of foreign countries in the Great Lakes region. According to the report of the Dutch Ministry of Foreign Affairs, there are still insecurity problems in the RDC.47 However, minerals are not the only factor fuelling this ongoing instability. Although many experts warn against the oversimplification of the war in Congo as a war of business, the reports of NGOs and the UN show the international community that there is a link between the human rights abuses and the exploitation of Congo’s natural resources. And it is time that the international community and companies working with minerals stop funding the war in the Democratic Republic of Congo.
45Human Rights Watch, news, ‘DR Congo: M23 Rebels Kill, Rape Civilians, New evidence of Rwandan
Support for M23’ <http://www.hrw.org/news/2013/07/22/dr-congo-m23-rebels-kill-rape-civilians> accessed 31 May 2015
46 Pete Jones, ‘Congo: We did whatever we wanted, says soldier who raped 53 women’ The Guardian (London,
11 April 2013)< http://www.theguardian.com/world/2013/apr/11/congo-rapes-g8-soldier> accessed 31 May 2015
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Chapter II The EU draft regulation on conflict minerals
This second chapter examines the European Union draft regulation on conflict minerals. Conflict minerals are minerals fuelling conflicts and human rights abuses in conflict areas.48 In Congo these minerals are diamond, gold, coltan-tantalum, cassiterite-tin and tungsten. Cobalt and copper from the Katanga province in Congo also contributed to the conflict, but on a much lower level than the minerals from the Kivu region. Starting with the development of the law proposal, the questions are as follows: What is the reason behind this draft proposal? What developments have led to this proposal? What is the objective, the content and scope of this regulation? What is the procedure of the draft regulation and at what stage is it now? This chapter describes the process of conflict-minerals law-making in the European Union., and it concludes that, while the need for this law is shared among all stakeholders, the proposal is blocked because of the debate regarding its voluntary approach.
2.1. Law in the making: background
In March of last year the European Commission proposed a draft regulation for preventing international trade in minerals from intensifying or perpetrating conflict.49 This proposal was a response by the European Commission to the European Parliament resolution on the situation in Congo.50 In this resolution the Parliament condemns the mass rape and other human rights violations that took place in 2010 in Congo.51 The Parliament requested the commission and the council to come up with a legislative initiative to put an end to the illegal mineral trade in the Congo, which is financing rebel groups and fuelling the conflict.52
The draft proposal on conflict minerals attempts to set up a system for supply-chain due diligence self-certification of responsible importers of minerals coming from conflict areas. With 400 importers of tin, tantalum, tungsten and gold – the so-called conflict minerals – the European Union is one of the largest markets for these minerals.53
48 The Dodd Frank Wall Street Reform and Consumer Protection Act 2010 section 1502: ‘Conflict Minerals are
defined under the 2010 US Dodd-Frank Act as columbite-tantalite; cassiterite; gold; and wolframite or their derivatives to be financing conflict in the DRC or an adjoining country’.
49 European Parliament, ‘Resolution on failures in protection of human rights and justice in the democratic
Republic of Congo’ P7-TA (2010) 0350 Final
50 European Parliament, ‘Resolution on failures in protection of human rights and justice in the democratic
Republic of Congo’ P7-TA (2010) 0350 Final 14
51 European Parliament, ‘Resolution on failures in protection of human rights and justice in the democratic
Republic of Congo’ P7-TA (2010) 0350 Final 1
52 European Parliament, ‘Resolution on failures in protection of human rights and justice in the democratic
Republic of Congo’ P7-TA (2010) 0350 Final M
15 | P a g e The draft proposal combines two main objectives of the European Union towards raw materials. The first objective, as expressed in the Raw Materials Initiative (RMI), is to secure the access to minerals with a sustainable supply chain.54 This supply chain consists of approximately 300 traders, 20 smelters and refiners and more than 100 manufactures.55 The second objective of the draft proposal is to answer the demands of citizens and the civil society in Europe as well as the call by the European parliament to implement rules on conflict minerals inspired by the United States’ Dodd Frank Act.56
Section 1502 of the Dodd Frank Act stipulates that American companies must disclose annually whether their products contain conflict minerals originated from the Democratic Republic of the Congo or from one of its nine neighbouring countries.57 Doing so alerts consumers that they are purchasing devices manufactured with conflict minerals.
2.2. Law in the making: content
The draft proposal contains 16 articles addressing the problem of financing conflict with the trade of minerals. Annex II of the regulation lists responsible smelters and refiners and Annex III lists Member State authorities in charge of the application of the regulation as required in Articles 8 and 9.58
In Article 1 the geographical scope of the regulation is set to be unlimited and applies to minerals from every conflict-affected and high-risk area.59 Conflict-affected and high-risk areas are defined in Article 2(e) ‘as areas in a state of armed conflict, fragile post-conflict and states with weak or non-existent governance and security, such as failed states, and widespread and systematic violations of international law, including human rights abuses’.60
54 European Commission, ‘Communication from the commission tot the European Parliament and the council-
The raw materials initiative: meeting our critical needs for growth and jobs in Europe’ COM(2008)699 Final Sec(2008)2741
55 Michael Littenberg and Farzad Damania, ‘European Commission proposes EU conflict minerals legislation
-takeaways for U.S. Registrants and other companies’ Schulte Roth Zabel ( New York, 5 March 2015) < www.lexology.com/library/detail.aspx?g=793512f2-7f37-4188-98a7-b1d775d38d66> accessed on 31 may 2015
56 European Parliament, ‘Resolution on failures in protection of human rights and justice in the democratic
Republic of Cong’ P7-TA (2010) 0350 Final
57 Ibid M 58
European Commission, ‘Proposal of the European Parliament and of the Council: setting up a Union system for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas’ COM(2014) 111 Final <
trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152227.pdf> Accessed 31 May 2015
59
Ibid COM(2014) 111 Final article 1
16 | P a g e Article 3 provides a self-certification scheme for importers. Importers who want to be entitled as responsible importers can make a declaration in which they commit themselves to complying with the due diligence obligations. Member States are then the ones who will cross-check their commitments by setting up competent authorities.61 These authorities are assigned powers to make notice of remedial action and claims of non-recognition against importers infringing the rules set in Articles 4, 5, 6 and 7.62 Articles 4 and 5 require companies to comply with the OECD due diligence approach regarding management systems and risk management.
Article 6 requires third-party auditing of the importers’ activities and the supply chain due diligence practices. Article 7 provides the disclosure requirements for importers. First, they have to submit annually a report to the Member State’s competent authorities on the use of conflict minerals relative to the total minerals they have bought that year. Secondly, they have to submit a list with responsible smelter and refiners in their supply chain and the use of conflict minerals by those smelters and refiners. The next step for importers is to inform their downstream purchaser of the information gained from its supply chain due diligence. Finally, they must provide an annual report to the public noting their due diligence practices and responsible sourcing.
2.3. Law in the making: voluntary or mandatory, who decides?
The draft proposal is under the ordinary legislative procedure,63 which means that three main actors are involved: the European Commission, the European Parliament and the European Council. First, the European Commission acts as initiator of the proposed legislation on conflict minerals as outlined above. The European Parliament is the next actor and it can agree on and adopt the law. However, the European Parliament also has the power to propose amendments to the draft regulation. The draft regulation is under the assignment of the Committee on International Trade (INTA). When the European Parliament reaches consensus on the final proposal, the European Council has to decide whether it adopts or again amends the draft and sends it back to the Parliament.
61 COM (2014) 111 Final article 4 62
COM (2014) 111 Final article 14
17 | P a g e The Parliament rejected the draft proposal and proposed an amendment to replace the voluntary system of self-certification with a mandatory system.64 This means that not only 400 importers, smelters and refiners but 800,000 European manufacturers would be obliged to apply due diligence on their supply chain.65
The decision made by the European Parliament is the answer to the draft proposal’s critics.66 The main criticism of the draft regulation was that if passed it would fail to have a meaningful impact on the trade of conflict minerals. First, it covers only four minerals. Secondly, the regulation will only apply to a small number of European companies, i.e. importers of raw materials, meaning it will not reach manufactures and importers of semi-finished and semi-finished products. And the last critical point is its voluntarism, which gives the affected European companies the choice to go through a process of due diligence and disclosure.
Stakeholders such as NGOs did not believe in the efficacy of the voluntary rules. In their view, the only way the EU can effectively delink itself from funding armed conflicts is by imposing compulsory due diligence and certification schemes.67 Research conducted by SOMO, a European NGO, has shown that the majority of enterprises are not willing to take a pro-active stands towards voluntary due diligence systems.68 If adopted by the European Parliament, the draft proposal will not meet its objective of bringing trade in conflict minerals to a stop. Believing in the good will of companies to behave corporate responsible without binding rules coming from state is no longer assumed in Europe.
The Council of the European Union does not take a position in the debate on the draft regulation on conflict minerals.69 However, it acknowledges the importance of breaking the link between conflict and mineral extraction by the European Union.70 Responsible sourcing
64 Guardian global development, ‘European parliament voted for tougher measures on conflict minerals’ The Guardian (London, 21 May 2015) <www.theguardian.com/global-development/2015/may/21/> accessed 31
May 2015
65 Ibid
66 Global Witness, ‘Open letter to Members of the European Parliament on the EU conflict minerals regulation’
(2015) www.globalwitness.org/campaigns/conflict-minerals/conflict-minerals-europe-brief/more-150-civil-rights-groups-call-meps-strengthen-eu-conflict-minerals-regulation/ accessed 31 May 2015
67 Somo, ‘Conflict Due Diligence by European Companies’ [2013]
<www.somo.nl/publications-nl/Publication_4003-nl> accessed 31 May 2015
68
Ibid 9
69 The Council of the European Union, ‘Council conclusion on the Union’s approach on responsible sourcing of
minerals’ Foreign Affairs council meeting (2014) < file:///C:/Users/Peace/Downloads/143332.pdf> accessed 31 May 2015
70
The Council of the European Union, ‘Council conclusion on the Union’s approach on responsible sourcing of minerals’ Foreign Affairs council meeting (2014) < http://www.consilium.europa.eu> accessed 31 May 2015
18 | P a g e of minerals from conflict-affected and high-risk areas must be preferred over trade that funds armed conflict71. Lastly the EU Council looks forward to a framework that is based on supply chain due diligence and in line with the EU raw material policy.
In this context a stronger position by the Council would be preferable to speed up the decision-making process. Despite the political will to break the link between conflict and illegal exploitation of minerals, the fact remains that a law on conflict minerals in Europe is not yet in sight.
2.4. Existing EU initiatives on natural resources
There is existing EU legislation on natural resources which relates to the draft regulation on conflict minerals. Two worth mentioning are the Council regulation on ‘blood diamonds’ and the Parliament and Council regulation on ‘blood timber’.72
The EU timber regulation (EUTR) is a good example of mandatory supply chain due diligence on natural resources. The aim of the regulation is to stop the trade in illegal timber from forest-rich countries73. Traders and importers of timber products are obliged by the EUTR to carry out due diligence on their supply chains.74 Furthermore, they are prohibited from bringing illegally harvested timber to the EU Market.75
The council regulation on ‘blood’ or ‘conflict’ diamonds implemented the Kimberly Process certification scheme for the international trade in rough diamonds.76 The Kimberly Process certification scheme was set up to stop the trade in conflict diamonds, which can be linked to rebel groups aiming to undermine or overthrow legitimate governments.77 The European Union, as one of the 54 participants of the Kimberly Process, accepted the requirements to certify shipments of rough diamonds and only trade legally with other participants.78
71
Ibid 4-8
72 European Commission, ‘Commission staff working document impact assessment’ (2010) SWD(2014) 53 final
<http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152229.pdf>
73 Ibid 67 74
Regulation (EU) 995/2010 of the European Parliament and of the Council on timber and timber products
75 Ibid article 4
76 Council Regulation (EC) 2368/2002 implementing the Kimberley Process certification scheme
77 Kimberly process, ‘Kimberly process certification scheme’ <
http://www.kimberleyprocess.com/en/kpcs-core-document > accessed 31 May 2015
19 | P a g e
Chapter III International standards for corporate social responsibility
This chapter attempts to determine whether the draft proposal by the European Union on conflict minerals meets international standards. We will examine the concept of supply chain due diligence in the OECD guidelines and in the United Nations framework of business and human rights. And last but not least we will analyse the statement made by the European Commission that the due diligence system for importers in the draft proposal by the European Union is far-reaching compared with the one established by the OECD’s due diligence guidelines.79
3.1. The Organization for Economic Co-operation and Development Guidelines
The OECD has 34 Member States and was established in 1961 to succeed the Organization for European Economic Cooperation (OEEC).80 The OEEC successfully managed the US-financed Marshall Plan after World War II. The OECD has two relevant guidelines for the trade in conflict minerals: the OECD Guidelines for Multinational Enterprises and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD DD Guidance). The Guidelines for Multinational Enterprises contains voluntary general rules and additional rules of conduct.81 The following is a relevant article regarding the respect for human rights by enterprises:
“Article A2, Enterprises should respect the internationally recognized human rights of those affected by their activities.”
The human rights referred to are the one expressed in the following treaties: Universal Declaration of Human Rights; the International Covenant on Civil and Political Rights; the International Covenant on Economic, Social and Cultural Rights; and the International Labour Organisation Declaration on Fundamental Principles and Rights at Work.82
Another interesting article is A12, which mentions a direct link between an adverse impact and the enterprise’s activities:
79
European Commission, ‘Responsible sourcing of minerals originating conflict-affected and high-risk areas: towards an integrated EU approach’ Memo (2014) <
www.europa.eu/rapid/press-release_MEMO-14-157_en.htm> accessed 31 May 2015
80 The Organization for Economic Co-operation and Development Guidelines <www.oecd.org/about/history/> 81
OECD guidelines for multinational enterprises and the OECD due diligence guidance for responsible Supply chain of minerals from conflict affected and high-risk areas
<http://www.oecd.org/corporate/mne/GuidanceEdition2.> (The OECD guidelines) accessed 31 May 2015
82 Ibid General policy A2, chapter IV. Human rights 39: ‘In all cases and irrespective of the country or specific
context of enterprises’ operations, reference should be made at a minimum to the internationally recognised human rights expressed in the International Bill of Human Rights’.
20 | P a g e “Article A12, Enterprises should seek to prevent or mitigate an adverse impact where they have not contributed to that impact, when the impact is nevertheless directly linked to their operations, products or services by a business relationship. This is not intended to shift responsibility from the entity causing an adverse impact, to the enterprise with which it has a business relationship.
According to Article A15, enterprises are not allowed to interfere negatively with the local political activities.
The OECD guidelines also recommend responsible supply chain management (Article B2), disclosure and an inclusive risk management with human rights due diligence. This means that if enterprises discover damaging behaviour of others in the supply chain that goes against the guidelines, they have to take action against it.83 With disclosure the guidelines request enterprises, especially the ones working globally, to publish information about their activities and products to shareholders, the financial community and the public, with the aim of reaching a certain level of transparency.84
The OECD Due Diligence Guidance for Responsible Supply Chain of Minerals from Conflict-Affected and High-Risk Areas (OECD DD Guidance) is a more specific support framework for companies dealing with conflict minerals.85 The OECD DD guidance is based on the concept of due diligence as developed by the United Nations Panel of Experts on the Democratic Republic of the Congo and their experience in the Great Lakes Region.86 It provides five steps companies to follow to comply with the above-mentioned OCED guidelines when implementing a due diligence system. The steps are the following87:
• Establish a strong company management system, to control and provide transparency over the mineral supply chain from conflict-affected and high-risk areas.
• Identify and assess the risk of adverse impact in the supply chain.
• Develop and implement a risk-management system to respond to identified risk. • Support third-party auditing of the supply chain.
• Publish information on supply chain due diligence.
83
OECD due diligence guidance for responsible Supply chain of minerals from conflict affected and High-Risk Ares (2013) < http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf.> accessed 31 May 2015
(The OECD DD guidance) 24
84 Ibid 27 85
OECD due diligence guidance for responsible Supply chain of minerals from conflict affected and High-Risk Ares (2013) < http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf.> accessed 31 May 2015
86 Ibid 3,7,8 and EU Commission DG for Trade, final report, ‘Assessment of due diligence compliance cost,
benefit and related effects on selected operators in relation to the responsible sourcing of selected minerals’ [2013] < http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152230.pdf >
21 | P a g e The OECD DD Guidance provides a supplement for the supply chain of gold and tin, tantalum and tungsten, the same minerals mentioned in the proposed EU draft regulation.88 The supplement was developed because of the specific challenges associated with the structure of the supply chain of tin and gold.89 The tin supplement starts with a system of red flags, helping companies to determine if they source from a conflict-affected and high-risk area. A red flag location will trigger the application of the OECD DD guidance for their supply chain.90 The gold supplement does not have a red flag system but also acknowledges the complexity of operating in certain areas.91 Companies sourcing gold are required to do a two-step risk identification of their sourcing location to determine the applicability of the guidance.92 The supplement demands flexibility from companies sourcing minerals in conflict-affected and high-risk areas. If they cannot meet every due diligence requirement, they at least need to avoid contributing to conflict and human rights abuses in their supply chain.93
3.2. UN-based principles for business and human rights (Global Compact)
Another international voluntary-based initiative is the United Nations Global Compact. This initiative adopted in 2000 has the objective to encourage businesses to behave more sustainably and with more social responsibility when operating at home and abroad.94 The UN Global Compact consists of ten general principles, wherein businesses are asked to adjust their corporate behaviour and to report about their activities and policies.95 Relevant principles with regard to this research are Principle 1 and Principle 2:
“1. Businesses should support and respect the protection of international human rights; 2. Businesses should make sure they are not complicit in human rights abuses.”
Before examining if the Global Compact principles set higher standards than the OECD Guidance, it is worth mentioning that the principles are not rules which can be enforced. Its accountability system is founded on voluntary reports and policy statements made by its members. No sanctions can be applied for non-compliance with the principles. The question
88 OECD DD guidance 32, 62 89 OECD DD guidance 15, 16 90 OECD DD guidance 18, 33,34 91 OECD DD guidance 62-64 92 OECD DD guidance 63 93 OECD DD guidance 64
94 United Nations, ‘Global Compact’ <www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html>
, accessed 31 May 2015
22 | P a g e therefore remains if the Global Compact is an effective instrument for influencing corporate behaviour.
The first principle of the Global Compact clearly meets the minimum global standard of respecting human rights as set in the OECD Guidelines.96 It is interesting to note that, according to this principle, businesses that find themselves infringing upon human rights are not allowed to compensate for this with philanthropic acts.97 However, philanthropy, supporting UN millennium goals, public engagement and strategic partnership for sustainable development can be seen as promotion and support of human rights, and is encouraged in Principle 1.
According to Principle 2, complicity is an act or omission by a business, or representative of the business, which knowingly helps another to violate human rights. There are three levels of complicity: 1) direct, 2) beneficial and 3) silent complicity. Direct complicity is when a business supplies the perpetrator with goods or services knowing that they are going to be used to violate human rights. Beneficial complicity occurs is when a business benefits from human rights abuses even if the business did not assist with or cause the abuses. Silent complicity occurs when a business does not respond or react in the middle of systematic or continuous human rights abuses.98 Businesses can reduce their complicity by having an effective human rights policy or a due diligence system for their activities.
For state-owned enterprises, complicity means that they have direct responsibility under international law, because their actions can be contributed to the state.99 When overlapping with international criminal law, an enterprise can be held responsible for assisting with a crime.
A salient example of complicity in international criminal law is the Simic case. In the Simic case complicity is defined explained as a legal term in criminal law: aiding and abetting. The three Serbians in the case were accused of having a joint criminal enterprise that prosecuted and tortured non-Serbians during the civil war. In this case the notion of aiding and abetting put no emphasis on knowing and not knowing. This means that it is completely irrelevant
96 UN Global Compact principle one www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/Principle1
(Global Compact), principle 1
97 (Global Compact), principle 1
98 United Nations, ‘Global Compact: Principle two’
<www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/Principle2>
99
United Nations, ‘Global Compact: Principle two’
23 | P a g e whether the accused knows exactly which crime is committed; when the assistance is substantial to the crime, one is legally liable.100
In the light of globalization, despite how far-reaching the second principle seems be, it is still a fact that businesses operating worldwide cannot be held internationally liable for their acts or omissions. For example, the international criminal courts and other regional tribunals are only able to try natural persons.101 This fact increase the ineffectiveness of the UN principles. Perhaps international courts should be able to hold human rights abusers responsible for their action whether they are natural persons, states or non-state actors like enterprises.
3.3. United Nations Guiding Principles on Business and Human Rights
Very similar to the previous principles are the United Nations Guiding Principles on Business and Human Rights. Article A2 of the UN guiding principles contains the statement that states should regulate the extraterritorial behaviour of business enterprises domiciled in their territory and jurisdiction:
“States should set out clearly the expectation that all business enterprises domiciled in their territory and/or jurisdiction respect human rights throughout their operations.”
States are encouraged by Principle B7 to guarantee that their business enterprises do not violate human rights.102 This article contains four elements. First, states should set up risk management related to human rights abuses. The second element is that countries need to assist businesses to find ways to cope with human rights abuses, especially gender-based and sexual violence103. Thirdly, pro-activeness is required and states must stop providing businesses with support and services if the businesses are violating human rights and are not willing to stop. The last assignment to the states is that they have to regulate their corporate behaviour through law, policies and enforcement mechanisms.104
The principles are based on cooperation between states and businesses. They fill the gap in areas of conflict when host states are not able to ensure the respect for human rights and safety of their own civilians. The following principles put more weight on businesses, which
100 ICTY case IT-95-9-T Prosecutor v. Blagoje simic [2003], paras 160-162
101 John Ruggie, ‘report on the issue of human right and transnational corporations and other business
enterprises’ [2008] <www.reports-and-materials.org/sites/default/files/reports-and-materials/Ruggie-companion-report-15-May-2008> accessed 31 May 2015
102 United Nations, ‘Guiding principles on business and human right’ <
http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf >
103 United Nations, ‘Guiding principles on business and human right’
<www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN> accessed 31 May 2013
24 | P a g e are required to take the following steps: respect human rights (Article A11), make a policy statement (A16), perform human rights due diligence (A17), and engage in remediation (A22).105
The above-mentioned guidelines and principles have several commonalities as well as small differences. However, the UN Guiding Principles contain an additional chapter for the protection of human rights. If there is an abuse of human rights, states and businesses are requested to seek remedy nationally or international. Therefore businesses can be tried for their activities or their omissions by judicial and non-judicial bodies.106
3.4. EU goes deeper in the supply chain
In this chapter we have discussed three main frameworks for business and human rights. Starting with OECD Guidelines we found the requirement that enterprises must respect human rights. These human rights are defined in the following international treaties and frameworks: the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights; the International Covenant on Economic, Social and Cultural Rights; and the International Labour Organisation Declaration on Fundamental Principles and Rights at Work.107 They are the main documents for the protection of human rights by states, the first addressee of the international law. However, in the light of globalization and armed conflict, non-state actors like businesses and especially multinationals are gaining much more power than the host states.108 Given this reality, many believe this power comes with more responsibility towards human rights. Especially in conflict-affected and high-risk areas where governments of host states are incapable of guaranteeing the respect of human rights, businesses should be aware of the role they can play in respecting human rights.
Besides the responsibility to respect human rights, the OECD Guidelines also ask companies to prevent human rights abuses. This prevention can be reached by risk management of the situation by enterprises. For a lot of companies that operate abroad or receive their products
105
Ibid 15, 16, 17, 24
106 Ibid 28
107 OECD guidelines for multinational enterprises and the OECD due diligence guidance for responsible Supply
chain of minerals from conflict affected and high-risk areas, General policy A2, chapter IV. Human rights 39
108
United Nations, ‘Global Compact: Principle two’ <https://www.unglobalcompact.org/what-is-gc/mission/principles/principle-2>
25 | P a g e from suppliers, it seems very difficult to manage the risk of the whole supply chain. Nevertheless they have to make this effort and publish their findings for the public.109
The claim that the EU draft proposal goes further than the international standards is valid. According to Article 7 of the draft regulation, importers are required to disclose their due diligence findings with their direct downstream purchasers. Disclosure in the above-mentioned principles and guidelines does not require sector-wide publication but only information sharing with the public for reasons of accountability.
Beside this difference, the draft regulation overlaps with the majority of the guidelines and the UN-principles. The clear framework of prevent, respect, report and mitigate is echoed in all the above-mentioned frameworks including the Global Compact, the UN Guiding Principles for Businesses and Human Rights and the OECD DD Guidance.
These frameworks not only share the same content and do not challenge one another to raise the minimum level of corporate responsibility, but they are also all voluntary in nature. Therefore businesses are not required to comply with them. Voluntarism is, however, seen as the appropriate way of dealing with businesses when it comes to corporate social responsibility.110
In the context of conflict minerals, responsible sourcing is part of corporate social responsibility as laid down by the above-mentioned international guidelines and principles. The inclusion of companies’ social behaviour, such as exercising due diligence in their supply chain, is assumed to be voluntary and not per se obliged by law.111 However, the increasing amount of globalization and the gross human rights abuses that have already been committed by businesses demand a certain regulation of corporate behaviour.112 Mandatory rules of due diligence can be seen as a suitable solution for the specific and complex supply chain of conflict minerals. The voluntary principles and guidelines can contribute to the
109 OECD due diligence guidance for responsible Supply chain of minerals from conflict affected and High-Risk
Ares (2013) < http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf.> accessed 31 May 2015 (The OECD DD guidance) 24
110
Sorcha Macleod, ‘Corporate social responsibility within the European Union framework’ (2005) Wisconsin International law journal 551
111 Samuel O Idowu and Céline Louche, Theory and practice of corporate social responsibility (Springer
Heidelberg, 2011) 57
112
Sorcha Macleod, ‘Corporate social responsibility within the European Union framework’ (2005) Wisconsin International law journal 551, 552
26 | P a g e promotion of human rights, but they are not effective if they are applied differently by different companies.113
The principles and guidelines have influence on a large part of companies to respect human rights. Enterprises that do respect human rights are willing to publish their policy statements regarding corporate responsibility. However, the majority of companies are not eager to delink themselves from certain abuses and many have even been found to be complicit in violation of human rights; for such companies, enforceable laws are needed. Clearly, the above-mentioned voluntarily frameworks fall short of what is needed to sanction these companies for their wrong doings.
113
Commission, Green paper, ‘Promoting a European framework for Corporate Social Responsibility’ COM(2001)366 final 2010 14 accessed 31 may 2015
27 | P a g e
Chapter IV Regional initiatives on corporate social responsibility and
conflict minerals
This chapter provides a comparison between the draft regulation, which provides the minimum standard of human rights protection, and other regional regulations. These latter regulations contain stricter rules with the same objective of delinking the trade in minerals from human right abuses in conflict situations. First, this chapter explores the Dodd-Frank Act, adopted in the United States to curb the trade in conflict minerals. The other legal framework discussed is the Great Lakes Regional Initiative on Natural Resources (RINR). It is worth mentioning that China, an important player in the trade in minerals and the production of electronic devices, lacks any regulation on conflict minerals.114 Hopefully, the global scope of the European draft regulation will be able to fill this gap somewhat.
4.1. The Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
In the Dodd-Frank Act, passed in 2010 by the United States Senate, there is a far-reaching disclosure requirement regarding the use of conflict minerals from the DRC.115 In Section 1502 of the Act, companies listed on the United States stock exchanges are required to report on the use and origin of the following conflict minerals: cassiterite-tin, wolframite, tungsten, coltan-tantalum and gold.116 The Dodd Frank Act recognizes the OECD Due Diligence Guidance as the international standard the US-listed companies need to meet.117 The objective of the Dodd Frank Act is to delink the minerals used by US manufactures from the activities of armed groups in the Great Lakes region.
The easiest scenario is when the listed companies can prove that they do not rely on conflict minerals from the DRC and bordering countries, including Central African Republic and South Sudan. If this is the case, they do not have to take any further steps.118 If however the minerals they use to manufacture products do come from the DRC or neighbouring countries or if the companies are unsure about where the minerals originated, they have to go through
114 Allison M Blake, ‘SEC cannot cleanse the electronics Industry alone: ‘’blood minerals’ mandatory disclosure
legislation effective only if applied across the board’ [2014] J Corp L 395, 411
115
Louise Arimatsu and Mistry Hemi, Conflict Minerals: The search for a normative framework (Chatham House 2012)
116 Somo,’Conflict Due Diligence by European Companies’ [2013]
www.somo.nl/publications-nl/Publication_4003-nl accessed 31 May 2015
117
Ibid 2
28 | P a g e new investigatory and disclosure procedures. Companies must report on their efforts to determine the source of the minerals and ensure that rebel groups do not profit from the trade of these minerals.119 This report must be accompanied by an independent, private-sector audit that needs to be certified. The audit must pass through the controller general of the US Securities and Exchange Commission (SEC), and the Secretary of State. If the audit is found to be unreliable or unsatisfactory, then the manufacturer will be found in violation of the audit requirement and subject to penalties from the SEC.120
Section 1502 of the Dodd Frank Act has received a lot of criticism from different groups. The biggest criticism is that the required due diligence is a de facto embargo on minerals originated from the Congo.121 Consequently, a few companies stopped working in the Congo for fear of being sanctioned and receiving negative publicity. Traders and mine workers were left without work or income. Many were forced to seek illegal ways to sell the minerals.122 This criticism is partial misplaced. It has been proven that the export of minerals from the Great Lakes Region has decreased.123 But this is more the result of the Congolese government’s suspension of all mining activities for a period of six months as a reaction to the recently signed Dodd Frank Act.124 Furthermore, the disclosure requirement does not rely on sanctions but more on adverse reputational effect to control corporate behaviour.125
Comparison between the Dodd Frank Act and the European Commission proposed regulation on conflict minerals
There are quite a few similarities between the proposed EU legislation and the Dodd Frank Act regarding conflict minerals. However, the European Union had time to learn from the shortcomings of its proposal’s predecessor. The similarities are that both regulations focus on the same minerals: gold, tin, tungsten and tantalum. Further, the two regulations are trying to reach the same goal: delinking minerals human rights abuses. However, the regulations target
119
Somo, ‘Conflict Due Diligence by European Companies’ [2013] <www.somo.nl/publications-nl/Publication_4003-nl> accessed 31 May 2015
120 Jeremy Jeffrey, ‘Tungsten is forever: conflict minerals, Dodd-Frank, and the need for a European Response’
(2012) 18 New England Journal of International and Comparative Law 508
121
Louise Arimatsu and Mistry Hemi, Conflict Minerals: The search for a normative framework (Chatham House 2012)
122 Ibid 35
123 Global Witness, ‘Dodd Frank act’ (2011)
<www.globalwitness.org/archive/dodd-frank-acts-section-1502-conflict-minerals/>
124 Sudarsan Raghavan, ‘Obama’s conflict mineral law has destroyed everything, say Congo miners’ (The Guardian (London, 2 December 2014)
www.theguardian.com/world/2014/dec/02/conflict-minerals-law-congo-poverty accessed 31 May 2015
125
Allison M Blake, ‘SEC cannot cleanse the electronics Industry alone: ‘’blood minerals’ mandatory disclosure legislation effective only if applied across the board’ [2014] J Corp L 401
29 | P a g e different types of companies. The EU legislation believes in a more bottom-up solution to the problem, and therefore is targeting importers, refiners and smelters of minerals. The importers are expected to self-certify their minerals. A list of responsible refiners and smelters would be published annually by the European Union. In contrast, the rules from the US focus on manufactures.
Figure 1.126
Targeting manufactures has put the efficacy of the US regulation in question. The financial burden of due diligence and disclosure requirements has pushed companies to purchase minerals far from the DRC and its neighbouring countries.127 Consequently, the Dodd Frank Act acts as an embargo, missing its objective to provide a transparent supply chain in conflict minerals. Manufactures, which are almost at the tip of the supply chain, lack the motivation to analyse hundreds of different suppliers to determine which has a link with the DNC. The focus of the EU on importers, refiners and smelters is argued to be more effective because these corporations are in a better position than manufactures to carry out due diligence and identification of the origin of the minerals they use.128 However, the choice of the US is understandable because manufactures are more sensitive to negative publicity than importers, who are rarely known by the public and consumers.
The Dodd Frank Act is pioneering legislation on conflict mineral laws, as it is the first legally binding framework related to gold, tin, tungsten and tantalum. In its eagerness to delink US companies from the conflict in the DRC, it is being criticized for miscalculating the possible negative consequences. The de facto embargo on Congo’s minerals is an example that has already encouraged the EU to carefully assess the effectiveness of its proposal. EU companies falling under the Dodd Frank Act, which in the future will have to comply with an
126 European Commission, ‘Joint communication to the European parliament and the council’ JOIN (2014) 8
final
127
Jeffrey (n 98) 510
30 | P a g e EU law on conflict minerals, will further show us the interplay between the two laws and therefore hopefully the right path to take in curbing the trade in conflict minerals.
4.2 ICGLR Regional initiative on natural resources (RINR)
The International Conference on the Great Lakes Region (ICGLR), established in 2006 by the Pact on Peace, Security, Stability and Development, involves 11 states: Angola, Burundi, Central African Republic, Republic of Congo, Democratic Republic of the Congo, Kenya, Uganda, Rwanda, Sudan, Tanzania and Zambia.129 Later, South Sudan joined the
International Conference on the Great Lakes Region. With the aim to bring peace in the region full of conflict, the Pact set up a legal framework with ten protocols binding for all states party to the pact. The pact addresses the illegal exploitation of natural resources in Article 9 of the treaty.130 The protocol calls on states to cooperation against illegal exploitation and to protect human rights. It is the legal basis for the regional initiative on natural resources (RINR) adopted in 2010.
The RINR provides six tools to combat the illegal exploitation of natural resources, and these are integrated with the OECD Due Diligence Guidelines. The tools are the following 1) a certification program for the region, 2) harmonization of national legislation, 3) a regional database on the movements of minerals, 4) formalization of the artisanal mining sector, 5) promotion of the Extractive Industries Transparency Initiative and 6) a whistle-blowing mechanism.131
With the RINR, the member states of the ICGLR developed a mandatory certification scheme in the region. Every state is obliged to comply with the standards for traceability and
certification as provided in the scheme. To obtain a conflict-free chain certification for its minerals, every state has to implement a tracking system for cassiterite (tin), Coltan (tantalum), wolframite (tungsten) and gold. The declaration ‘conflict-free’ means that the minerals do not come from mine sites or routes controlled by armed forces, so their trade cannot directly or indirectly support these armed forces.
Despite the good intentions of the African states, the RINR is criticized because the
smuggling of gold and other minerals from Congo through Rwanda and Uganda to the rest of
129 The international conference on the great lakes region (ICGLR) <www.icglr.org> accessed 31 May 2015 130 ICGLR, ‘The Pact on peace, security, stability and development’
<www.icglr.org/images/Pact%20ICGLR%20Amended%2020122.pdf> Accessed 31 May 2015
131
ICGLR, ‘the Pact on peace, security, stability and development’
