Commodity TopNews Fakten ● Analysen ● Wirtschaftliche Hintergrundinformationen 61 TIN FROM MYANMAR – A SCENARIO FOR APPLYING THE EUROPEAN UNION REGU- LATION ON SUPPLY CHAIN DUE DILIGENCE Christian Heimig 1, Philip Schütte 2, Gudrun Franken 2, Christoph Klein 3 Abb. 1:: Small-scale miners at the Mawchi tin mine, central Myanmar (photo: BGR). INTRODUCTION Starting from January 1, 2021, European Union including, among others, conflict financing, the (EU)-based importers of tin, tantalum and tungs- worst forms of child labor and human rights vi- ten, their ores, and gold are required to comply olations. To this end, the OECD guidance defi- with the EU regulation on supply chain due dili- nes a five-step due diligence framework, which gence (EU, 2017). The EU regulation is based on has been integrated into the EU regulation. The- the OECD due diligence guidance for responsib- se steps include establishing strong management le supply chains. The contents of this guidance systems, identifying and responding to supply provide a framework for companies to identify chain risks, carrying out independent third-party and mitigate risks in their mineral supply chains audits at certain points in the supply chain, and public reporting on due diligence implementation (OECD, 2016). 1 Formerly Federal Institute for Geosciences and Natural Resources, presently at Südwestdeutsche Salzwerke AG 2 Federal Institute for Geosciences and Natural Resources 3 Formerly Federal Institute for Geosciences and Natural Resources, presently at KPMG AG Wirtschaftsprüfungsgesellschaft 2 Commodity TopNews The US Dodd-Frank Act, enacted in 2010, al- oned experts to develop an indicative global list ready defines certain sourcing requirements for of such areas, companies remain responsible for so-called conflict minerals. A range of industry in- evaluating their own supply chains as part of their itiatives has since been established in order to internal due diligence management (cf. Annex, support regulatory compliance and risk manage- Fig. A1). The present Commodity Top News illus- ment along upstream mineral supply chains. As trates a model evaluation of this question based the Dodd-Frank act introduced a geographic fo- on a hypothetical supply chain scenario for tin ori- cus on central Africa, early due diligence im- ginating from Myanmar. plementation efforts focused on supply chains originating from this region. However, the EU re- gulation defines a global scope for due diligence SIGNIFICANCE OF TIN SUPPLY implementation in the supply chains of the affec- FROM MYANMAR FOR THE EU ted minerals and metals. On this background, mineral-producing regions beyond central Afri- The EU is an important market for tin smelter pro- ca may come under increasing scrutiny with re- ducts, with both Germany and the Netherlands gards to the feasibility of due diligence-related being among the top-five global importers of re- risk management in the context of international in- fined tin. Germany’s most important tin suppliers dustry initiatives. A critical factor is whether these are currently Indonesia and Peru. The so-called mineral-producing regions correspond to the for- “Wa state” represents an autonomous region in mal definition of a conflict-affected and high-risk Myanmar’s Shan state. Over the past few years, area. While the EU Commission has commissi- the region has become one of the most important 400.000400.000 350.000350.000 300.000300.000 250.000250.000 200.000200.000 150.000150.000 100.000100.000 Refined tin production Refined tin production (tons) 50.00050.000 0 0 Produktion Raffinadezinn (Tonnen) Produktion Raffinadezinn 20102010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 20172016 2018 2017 restrestliche of the world Welt IndonesiaIndonesien MyanmarMyanmar (mostly ("Wa-Staat"), “Wa state“) smelted in in China verhüttet ChinaChina Figure 2: Origin of global refined tin production. The proportion of Myanmar-derived tin refined in China was estimated from reported Chinese tin ore concentrate imports from Myanmar assuming an average tin grade of 20 % 4(reference: BGR raw material database and GTIS, 2019). 4 The increasing value of Chinese concentrate imports from Myanmar reported for 2017 indicates that these concentrates had hig- her tin grades compared to previous years. Therefore, for 2017, the actual tin content contained in concentrates originating from Myanmar should be somewhat higher compared to the tonnage shown in the figure. Commodity TopNews Commodity TopNews 3 tin mining areas at a global scale, after China and The official tin production in areas controlled by Indonesia (Figure 2). At the same time, the United the central government of Myanmar amounts to Nations have identified the Wa Army, operating in less than 1000 tons per year and, hence, is of mi- the “Wa state”, as one of the parties to the local nor global importance. However, even in these re- conflict. The Wa Army’s lack of initiative to stop gions controlling tin supply chains is not without the use of child soldiers represents a significant its challenges due to significant smuggling risks. risk in the context of supply chain due diligence. For example, the official purchasing price for tin concentrates from Mawchi is relatively low as it Tin ore mined in the “Wa state” is exclusively includes official levies and taxes. Therefore, this refined in China. In recent years, China expor- price cannot compete with black market prices of- ted only small tonnages of refined tin and asso- fered for Mawchi tin production. Tin concentrates ciated smelter products to Germany (cf. Annex, from Myanmar’s traditional tin mining areas typi- Table A1). This reflects China’s export tax re- cally have grades around 65 % tin and are expor- gime for raw materials and its high level of dome- ted to China or Thailand. stic tin consumption. Therefore, tin mined in the “Wa state” is currently not likely to be directly af- The so-called “Wa state” represents a globally fected by the EU regulation. Rather, this tin would important tin mining area. The autonomous regi- mainly reach the EU in the form of downstream on borders China and is controlled by the “Uni- supply chain products such as smartphones ma- ted Wa State Party” and the “United Wa State nufactured in China and then exported to Europe. Army” (UWSA). The UWSA represents the largest However, China reduced export levies on refined and best-equipped rebel group in Myanmar (The tin in 2017 making it economically more attracti- Irrawaddy, 2017). A ceasefire agreement with ve for EU-based companies to import refined tin the central government of Myanmar has been in from China. This development makes it more re- effect since 1989. The region was granted rela- levant for EU-based importers to reflect how they tive autonomy until the adoption of a new cons- should manage the associated supply chain risks titution. However, the UWSA has not accepted on the background of the EU regulation. Myanmar’s constitution of 2008. Given the de- facto independence of the region, the term “Wa state” is widely in use. TIN FROM MYANMAR – MINING AND TRADE While other regions of the Shan state feature limi- ted road networks and trade, satellite images de- The Southeast Asian tin belt, which includes My- monstrate the continuing expansion of roads and anmar, has been the major source of global tin border posts between the “Wa state” and China. production over the past decades. In Myanmar, The connection to China serves as the most im- tin and tungsten have been mined at Mawchi portant factor for trade and economic develop- from colonial times onwards; tin has also been ment in the Shan state. The Chinese have also mined in the Tanintharyi region. Tin mineraliza- supported the substitution of local opium poppy tion in Myanmar is associated with both primary cultivation with rubber and tea plantations since as well as secondary (placer) deposits (Gardi- 2005 (Transnational Institute, 2012). ner et al., 2015). Over the past five years, My- anmar has become the third-largest tin miner in In 2005 rich tin deposits in the area of the “Wa sta- the world behind China and Indonesia. However, te” were discovered; a local tin mining boom has this development is not related to the above tra- been observed since 2010 (Asian Metal, 2016; ditional tin mining districts. Instead, it is due to tin Xia & Lin, 2018). The “Wa state’s” tin ore produc- production from new tin mines in the so-called tion is exclusively exported to China (Figure 4). “Wa state” within the Shan state (Figure 3). The metal grades of these tin concentrates cur- rently vary from 17 – 30 %, depending on the tin deposit’s ore grades and the associated mineral 4 Commodity TopNews processing techniques (Xia & Lin, 2018). A cen- to tin chlorides, all of which are classified as “me- tral warehouse for tin concentrates is located in tals” affected by the EU regulation. the “Wa state’s” capital, Panghsang (Bangkang), at the border to the Chinese province of Yunnan A number of market observers expect that tin mi- (Figure 3). Regional traders, often based out of ning in the “Wa state” has already reached its Menglian, facilitate the marketing of the tin con- peak and will probably decline in the coming ye- centrates in China. A significant proportion of the ars. This development is due to reduced ore gra- concentrates is probably smelted in the Chine- des of the currently mined deposits as well as se mining center of Gejiu. While Gejiu is located the reduction of local stockpiles of concentrates more than 700 km from Panghsang, with roads (Xia & Lin, 2018). Indeed, the reported Chine- passing through a mountainous region, the local se imports of tin ores and concentrates from My- infrastructure is increasingly well developed and anmar indicate a significant decline.