The power of Brexit18 January 2017
The UK’s departure from the European Union is sure to be long and complex, no doubt with a hiccup or two in the mix. As Vincent Zabielski reveals the challenges the nuclear industry faces are intricate, with far-reaching implications for the sector and its global standing.
After decades of a general trend towards “ever closer union” in Europe, UK voters abruptly decided, via a nonbinding referendum on 23rd June, to demand that the UK withdraw from the European Union (EU). Today, months later after the surprise outcome, and there is still much soul-searching and prognostication regarding the potential impact of “Brexit” on the economies not only of the UK, but also in Europe and the rest of the world. While there are many important Brexit-related issues to be studied and resolved before the UK is ready to leave the EU, few are as controversial or misunderstood as the UK’s membership of the European Atomic Energy Community, also known as Euratom. Specifically, should (or could) the UK remain a member of the European Atomic Energy Community even as it withdraws from the EU? To what extent should UK participation in Euratom continue post-Brexit? And what might happen if it doesn’t?
Euratom and what it means
To put the current issues in perspective, it is useful to look at the history of Euratom and the event that gave rise to the need for the group. Euratom was the creation of six European nations (Belgium, France, Germany, Italy, Luxembourg and the Netherlands) in 1957, a time when nuclear power promised an endless supply of cheap electricity, provided of course one had the requisite technical ability and enough uranium to feed the reactors. In the late 1950s there was a general belief that nuclear power had the potential to revolutionise the production of electricity, and those states that mastered its use would have a strong competitive advantage over those that had not. Euratom’s primary function was therefore to secure the supplies of materials necessary to produce nuclear fuels for use in commercial nuclear reactors, to ensure equitable access of such materials among the Member States, and to promulgate common policies regarding radiation safety and nuclear waste.
The Treaty also provided a means for Member States to share technology and trade materials and equipment, among the members of the community and with non-member states, through bilateral nuclear cooperation agreements concluded between Euratom and non-Euratom countries. Euratom membership is mandatory for all EU Member States, regardless of whether the state has a nuclear power programme or not.
The Euratom Treaty predates the EU, and while it is not considered to be a “foundational treaty” of the EU, like the Treaty on European Union or the Treaty on the Functioning of the European Union, Euratom did in some ways provide a basis for the community of nations that eventually became the EU.
The seeds of the EU were planted in the five years prior to the formation of Euratom, with the formation of the European Coal and Steel Community (ECSC) in 1952. In 1957, the same six states that created the ECSC also established the European Atomic Energy Community, tying the economies of the Member States closer together. The EU itself was formed by the Treaty on European Union, signed at Maastricht on 7th February 1992.
Importantly, while some provisions of the original Euratom Treaty were modified by the Maastricht treaty, the Euratom Treaty retained its status as a stand-alone treaty. And when the Treaty of Lisbon came into force in 2009, amending the two foundational treaties of the EU, the Euratom Treaty remained an independent treaty, even when the European Economic Community (later re-named the European Community (EC)) was eventually integrated into the functioning of the EU. Presumably due to the controversial nature of nuclear power in Europe, the original Euratom Treaty has survived more or less intact as a standalone treaty, and Euratom as a separate organisation. The EU could have chosen to merge the functions of Euratom into the functioning of the EU but affirmatively decided not to do so. Nonetheless, the community created by the Euratom Treaty remains decidedly European – its members include all the members of the EU, and no country outside of the EU. Euratom and the EU are two different clubs that have all the same members.
Although the Euratom Treaty is not one of the foundational treaties forming the EU, it is nonetheless strongly tied to the mechanisms of the EU through Article 106a, which establishes oversight of Euratom by the European Commission, the European Parliament and the European Court of Justice. Article 106a even goes so far as to incorporate the same withdrawal provisions of Article 50 of the Treaty of Lisbon (i.e. the procedures for Brexit, discussed below), but it does so in a manner that makes conforming changes so that the Euratom exit procedures parallel those of the Lisbon treaty, but remain separate.
An article matter
Assuming that the UK goes ahead with implementing the decision to leave the EU, it will do so by invoking Article 50 of the Treaty of Lisbon. Article 50 sets out the entire withdrawal process in just a few hundred words, allowing any Member State to withdraw from EU “in accordance with its own constitutional requirements”.
The process begins when a state that is a member of the EU notifies the European Council of its intention to withdraw from the Union, and then negotiates and concludes an agreement that sets out the arrangements for its withdrawal, taking account of the framework for its future relationship with the EU. The process is designed to be an arms-length transaction, so the UK would be barred from participating in the discussions of the European Council, and has no voice in the decisions made by the EU.
Article 50 stipulates that foundational treaties of the EU shall cease to apply to the UK from the date of entry into force of the withdrawal agreement or, failing that, two years after the date that notification of withdrawal was provided. The two-year time limit may be extended by unanimous decision of the European Council.
The exit procedures for Euratom under Article 106a of the Euratom Treaty are identical, but the exit notification for the Euratom Treaty would not necessarily have to happen at the same time as the Brexit notification. Brexit – in theory at least – could precede exit from the European Atomic Energy Community, with preparation for exit from Euratom taking place over several years before Article 50 of the Euratom Treaty is triggered.
Continued participation in Euratom has advantages and disadvantages for the UK. On the plus side of the equation, participation in Euratom provides the framework for bilateral cooperation with the other 27 EU states that are party to the treaty, including major equipment and material suppliers such as France. Additionally, through bilateral nuclear cooperation agreements between the European Atomic Energy Community with other states, the UK’s participation in the community provides the basis for nuclear power cooperation with Australia, Argentina, Canada, Japan, Kazakhstan, South Africa, Ukraine, the US and Uzbekistan. Euratom also plays a significant role in developing directives governing, among other things, radiation safety and waste management policy for its members, resulting in a consistent approach to such matters throughout Europe.
Much nuclear commerce with the UK depends on the counter-party countries’ agreements with Euratom, and depending on the domestic legislation of the counter-party, such commerce could be disrupted if the UK withdrew from Euratom.
If the UK withdraws from Euratom, trade in fissile material and reactor components with many EU and non-EU trade partners could be interrupted until separate bilateral agreements are concluded with those countries. Moreover, agreements between Euratom and nuclear supplier nations are in many cases the legal basis for their exports to the UK of major power reactor components, as well as uranium consigned for UK conversion, enrichment and fabrication facilities.
These Euratom agreements are applicable to the UK in its capacity as a member of Euratom. Continued participation in Euratom would keep these legal channels for nuclear commerce available to the UK. Continued participation in Euratom for a period of time post-Brexit would allow time to establish agreements with those trading partners that currently do not have a standalone bilateral agreement with the UK. Somewhat ironically, in order not to disrupt commerce with the EU, the UK would need to enter into a bilateral cooperation agreement with Euratom that takes effect on the date that the exit from Euratom takes effect.
However, while Euratom membership provides the UK with the regulatory framework for much of its international nuclear trade, it also subjects the UK to significant oversight and regulation by the EU, which is what the “leave” movement objected to in the first instance. As long as the UK remains in Euratom, it will continue to be subject to broad EU governance relating to nuclear trade, in particular the Euratom Supply Agency (ESA).
The ESA was established by the Euratom Treaty to ensure a regular and equitable supply of ores, source materials and special fissile materials in the EU. The ESA, located in Luxembourg, has its own legal personality and functions under the supervision of the European Commission. Article 52 of the Euratom treaty gives the ESA the exclusive right to conclude contracts for the supply of ores, source materials and special fissile materials within the EU. Any nuclear operator that enters into an agreement to purchase or sell fissile materials must first get the contract approved by the ESA.
The control of ESA over fuel supply is close to absolute – member countries of Euratom only buy the right to use and consume nuclear fuel, while the European Atomic Energy Community retains the right of ownership. To be clear, while it remains a member of Euratom, the UK does not own, and is legally prevented from owning, any of its nuclear fuel. The fuel is the property of the European Atomic Energy Community. Euratom membership also obliges the UK to implement the directives related to nuclear safety and policy that are issued from time to time by the European Commission, which would undoubtedly rile some “Brexiteers”.
A final disadvantage of withdrawing from Euratom is the potential devastating effects on nuclear new build. Depending on the domestic legislation of the supplier country, projects from countries that would no longer have a treaty relationship with the UK could face significant delays whilst the bilateral treaties are negotiated. However, bilateral treaties typically take years to negotiate. If the UK were left with no legal framework to continue nuclear trade with Europe and the US, for example, countries that have a standalone bilateral nuclear cooperation agreement with the UK (eg Russia and China) will find themselves in a very advantageous situation. Such a market disruption should be avoided if possible.
To the point
So it comes down to this: should the UK remain a member of Euratom? Or should the UK leave?
The answer to both of these questions is “yes,” but with the answers given in the same temporal order as the questions were presented above. Considering all of the alternatives, the best path forward for the UK and its nuclear trading partners would be a controlled exit from the European Atomic Energy Community after Brexit. This way, as part of the Brexit negotiations, the EU and the UK could agree that the notification procedures under Article 106a of the Euratom Treaty would be triggered, for example, three to five years after the notification under Article 50 of the Treaty of Lisbon is triggered.
Such an approach would maintain trade, encourage a fair market for new build, and ensure safety and security standards are continuously maintained, while – over a reasonable period of time – restoring the autonomy that the UK seeks. Whether or not such an approach would be politically feasible remains an open – and urgent – question.
Vincent Zabielski is a senior lawyer at Pillsbury Winthrop Shaw Pittman