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Respondent details

  • Respondent: ACEA - European Automobilie Manufacturers Association
  • Location: Belgium
  • Profile: Trade organisation representing business
  • Main area/sector of activities/interest: Transport equipment (except railways); Other
  • Region of operation: Asia; Europe
  • Listed on a regulated market: No
  • Due diligence reports on a mandatory basis: No
  • Due diligence reports on a voluntary basis: No

Contribution

2. Rationale and existing frameworks

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

Yes

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

Image; Corporate Social Responsibility agenda; Other

2.2.1 If other, please specify.

Company policies on human rights, integrity, good business practices.

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

Yes

2.3.1 Please shortly describe your efforts and possible difficulties you encounter.

The automotive industry has a long and very complex supply chain. Extensive training for suppliers on working conditions + environmental aspects, as well as on human rights, has been developed/is being deployed. Difficulties incl. getting information to/from constantly changing sub-tier suppliers about human rights situation. The players at the end of the manufacturing process chain, i.e. vehicle manufacturers, are often not well placed to influence sourcing. However, those who actually directly purchase raw materials (e.g. smelters or those not purchasing sub-components, intermediate products; but the actual mineral) are more directly linked to the source of raw materials. The further the “distance” between the mineral extractor and the final product manufacturer, the less direct knowledge there is about the circumstances of the mineral producer or smelter. This is particularly because the final manufacturer cannot dictating or control where sub-tier supplier source their materials.

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

Yes

2.4.1 If yes, please specify.

The automotive industry is committed to sustainability and social responsibility. Suppliers do have to respect and act accordingly to several existing global standards, such as the OECD Due Diligence Guidance and the UN Guiding Principles and to industry specific sustainability standards and principles. The private sector’s actions need to be accompanied by good governance in affected regions, raw material and human rights diplomacy, etc. Measures of the private sector cannot act as substitutes for governmental ones. The private sector cannot solve problems which are mainly political in nature. Under these circumstances, coordinated efforts at local, regional and international level, that jointly address sourcing and good governance issues, would significantly improve the situation.

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?

Strongly agree

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

Somewhat agree

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

Somewhat agree

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?

Companies are in the process of incorporating international standards, norms and instruments in their own management systems. Some even take a step further by developing their own responsible sourcing initiatives, based on the existing schemes.

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?

The OECD Guidance describes a process-based approach that allows companies to identify, assess and mitigate the risk of their having conflict minerals in their supply chain in just 5 steps. This is a good approach for ensuring awareness and sensitivity to issues. It is important to keep it voluntary to minimise bureaucracy and improve adaptation to specific needs. An important lesson learnt is that automotive supply chains are complex and international. Thus an international, fully harmonised approach common to all industries is important to avoid diverging methodologies. The EU should not push industry to duplicate efforts requiring incremental reporting beyond what is already being conducted (either voluntarily based on the OECD’s Guidance, or due to other existing legislation).

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?

Dodd-Frank (DF) Act section 1502 is a product-based approach. Easiest way to comply with such schemes is to avoid sourcing from affected regions. Downside of this is that the root cause for conflicts isn't mitigated by it: it reduces economic activity in affected regions, making people poorer. De-facto the situation has resulted in a trade embargo against DRC, with a 90% decrease in exports in 3rd Q. 2011. In general, it's too early to draw any substantial practical lessons from DF Act. How due diligence can be implemented/what corporate reporting on conflict minerals will look like/how useful it will be are still to be seen. However, it's already clear that regulation w/o political action by involved governments won't achieve the desired result: an improved situation. It's the role of politics to calm the affected region/introduce good governance practices. The supply chain is already overwhelmed by the need to comply with DF Act, any EU initiative would further increase the burden.

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?

Development of regional certification scheme such as in GLR is a good example. Traceability/transparency in resource-holding countries can be improved. It should be supported by multilateral foreign policy/development co-operation, contributing to building institutions and capacity in producing countries. This would help monitor mining conditions in a careful manner. Such good governance helps to improve confidence of global markets + fosters local economic development. Benefit of such regional approaches is that it addresses a key problem on national level: smuggling of resources into neighboring countries. A certification approach needs to ensure: a) Efficiency by concentrating on players in the supply chain that are directly buying minerals i.e. smelters, b) Integrity/competence of certification body + practice, c) Impact on all affected sources/leaving no loopholes i.e. avoiding grey exports. Certification should be not a business in itself but be based on non-profit organisation.

 

3. Need and scope of a possible EU initiative

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?

No

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

No

3.3 Should an EU initiative target specific segments in the minerals’ supply chain?

Yes

3.3.1 If yes, which segment(s) should be targeted?

Mines; Traders; Smelters; Refiners

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

Yes

 

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

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

Yes

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

The EU is a major customer for minerals. Other countries are major competitors in these areas. For instance, China is involved in mining activities in Africa, focusing more on security of supply rather than on other objectives. There is obvious competition for securing long-term, sustainable supply of resources. The motivation for securing supply thus already exists. Alignment of social and environmental objectives is key. In order to achieve this, the EU should engage more actively with China, Brazil and other important players in the global market. Success also requires that governments, international organisations, the private sector and civil society work closely together.

4.3 To the extent that the response strategies of some businesses to the U.S. 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?

The EU should shift the focus from transparency issues towards solving the root cause of conflicts. This requires political resolution and a strong dialogue with the governments and local authorities in the areas that would be affected by a future EU initiative. In any case, EU companies that are listed in the US will have to comply with the Dodd Frank Act. The EU should therefore avoid any duplication of the system and ensure that a future EU initiative is mutually recognised as equivalent by US authorities. Companies should be able to choose to comply with either scheme.

 

5. Nature of the initiative

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.

Strongly disagree

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?

The EU should shift the focus from transparency issues to solving the root causes of conflicts in resource rich regions. There should be EU pressure on the region to solve the conflict using political tools. The following instruments could be used to achieve this: - Ensure good governance by diplomacy and development aid, - Verify the finance sector to ensure that profits from the illegal sale of conflict minerals cannot be used, - Disable weapons being circulated in that region, - Ensure a cost-free certification process for companies, - Provide development aid for certified companies in that region to ensure that they can sustainably maintain their standards, - Support NGOs and governmental bodies who try to educate and help non-certified mining companies towards the correct approach whilst avoiding corruption, - Increase diplomatic pressure on conflicting parties, etc.

 

6. Lessons learned from the EU Timber Regulation

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?

Strongly disagree

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?

No

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?

No

6.4 Are the laws of the mineral producing countries sufficiently developed and implemented?

No

6.4.1 If you have examples to back either opinion, please share.

If the laws of the mineral producing countries were sufficiently developed and implemented, there would be no issue. There is often a lack of implementation and law enforcement. The implementation of the EU Timber Regulation should be properly assessed. It entered into force on 3 March 2013, before the EU decided to move to a similar direction in other policy fields.

 

7. Positive incentives to international corporations and businesses

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)?

No

7.2 Business would benefit in terms of brand image and consumer recognition by complying with an EU initiative on responsible sourcing.

No

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?

Don't know

7.4 Numerous private sector initiatives currently carried out allow to promote responsible sourcing from conflict-affected and high-risk areas.

Strongly agree

7.5 How can governments complement private sector led initiatives? Are there examples of positive incentives provided by governments in non-EU jurisdictions?

The Public-Private Alliance for Responsible Minerals Trade (PPA) is a good example: PPA is a joint initiative between governments, companies & civil society to support supply chain solutions for conflict mineral challenges in the DRC & the Great Lakes Region (GLR) of Central Africa. One of the PPA’s goals is “to support the development of supply chain systems that enable Supply Chain Actors to source minerals that are validated, certified, and traced to mines that are conflict-free, and monitored and audited using agreed-upon standards & mechanisms, and that lead to scalable, responsible, self-sustaining minerals trade in the GLR.” To achieve this goal, a main function of the PPA is to award grants through a competitive process to organisations that are creating on-the-ground, conflict-free mineral supply chains in the GLR. In 2012, Partnership Africa Canada & CENADEP, National Center for Support of Development and Community Participation, received awards & initiated their projects.

 

8. Economic and Competitiveness impacts

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 ?

Yes

8.1.1 If yes, what impact do you expect for the upstream industries?

N/A

8.1.2 If yes, what impact do you expect for the downstream industries?

Companies may avoid sourcing from the region altogether or pay for transparency. Both will increase costs and bureaucracy will be higher the more complex the product supply chain is. This means that the shorter the supply chain and the lower the material complexity, the smaller the impact.

8.2 What would be the possible impact of non–action?

Inaction on the part of the EU at the level of binding legislation should not be perceived as inaction on the side of industry. Various sustainability initiatives within the automotive sector are being deployed. The automotive industry takes the issue seriously and will continue to improve its activities and drive progress within the value chain, including in the sourcing of minerals and metals.

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.

The thorough impact assessment currently being conducted by the EU should also shed light on the expected costs of such legislation. Moderate estimates by the US Chamber of Commerce of the implementation costs implied by the US Dodd Frank Act show that the price of the comparable US legislation will reach $7 to 9 billion in 2014 alone (the first year that end-user companies will be required to file a due diligence report). Experience shows that the actual implementation costs surpass the initial estimates. More data should be collected and more studies should be carried out in order for the EU to get a clear view of the overall costs of future legislation on conflict minerals. Besides the administrative burden and compliance cost for companies, the EU institutions would also face significant costs in monitoring such a regulation.

 

9. Environmental impacts

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?

Don't know

9.2 What would be the possible impact of non-action?

If there is no development aid for more environmental friendly mining and mineral processing for those regions, the current processing means are likely to continue.

 

10. Social impacts

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?

Yes

10.1.1 If yes, what impact do you expect?

Please refer to answer 10.2

10.2 What would be the possible impact of non-action?

If there is no political pressure of the EU on conflicting parties, no help for better governance, no support for social situation etc. the conflict will just continue. In order to avoid or mitigate any negative social impacts on the ground, any future EU initiative should be accompanied by measures that would target employment prospects, secure legal income sources for the local communities and improve overall living and labour conditions. This can only be achieved via close cooperation and support by local governments.

 

11. Other issues

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.

Overall messages, the EU should take into account: - An EU initiative on conflict minerals should effectively contribute to the ultimate goal, which is to improve the situation on the ground. The EU should shift the focus from transparency issues to solving the root causes of conflicts in resource rich regions. The assessment should be risk, not minerals-based. - The EU should not duplicate the Dodd Frank Act so as not to replicate the negative effects, which have resulted in effective trade embargos, loss of market access/secure supply of minerals for EU industry. - In case of any regulatory measure, principles of better regulation already agreed at EU level should be considered as a prerequisite. These mainly concern the quality of regulations, principals of competition-neutrality, costs-effectiveness, need to simplify legislation, use of impact assessments, recourse to stakeholder consultations, lead-time provided in new regulations and the choice of the most appropriate instrument.