Nuclear commerce: do restrictions hinder growth?

20 November 2007

The highly technical nature of nuclear power ensures that there is specialised knowledge and materials that countries must acquire before they can have a reactor construction programme. Under the Treaty on Non Proliferation of Nuclear Weapons (NPT), the five nuclear weapons states are obliged to transfer technology for the peaceful uses of nuclear science to treaty signatories who have given up any interest in weapons. It is sometimes argued that they haven’t fully fulfilled this, but the spread of (initially) research reactors around the world and (more recently) power reactors to over 30 countries, suggests some success at making nuclear something like a ‘normal’ business, where new technology developed in one country rapidly spreads elsewhere. There is also acute specialisation within the nuclear fuel cycle, which requires a trading regime and provision of transport. Buyers seek supplies at the lowest cost, subject to concerns on security of supply, and uranium supply and the other front end nuclear fuel activities are now largely in the hands of a limited number of companies. To the extent that there are impediments to the free flow of technology and materials today, how significant are they and could they constitute a barrier to the future development of the nuclear industry?

The Nuclear Suppliers Group (NSG) polices nuclear commerce from the point of view of adherence to the non-proliferation regime, through the implementation of guidelines for nuclear and nuclear-related exports. The NSG guidelines are followed by each of 44 national governments in accordance with their own laws and practices. Decisions on export applications are taken at national level in accordance with national export licensing requirements.

The NSG was created, initially with only seven members, after India first exploded a nuclear device in 1974, indicating that nuclear technology supplied for peaceful purposes could potentially be misused. The guidelines are essentially a set of export rules, seeking to ensure that transfers of nuclear material or equipment are not diverted to unsafeguarded nuclear fuel cycle facilities or towards nuclear explosive activities. They also recognise the need for physical protection measures in the transfer of sensitive facilities, technology and weapons-usable materials. The first set of NSG guidelines governed the export of items that are especially designed or prepared for nuclear use, such as fuel and reactor equipment. These were extended in 1992, by the addition of guidelines for transfers of nuclear-related dual use equipment, material and technology, essentially items that have additional substantial non-nuclear uses, for example in industry.

The main practical impact of the NSG is that nuclear trade with India and Pakistan has been severely limited, as neither country has signed the NPT while developing nuclear weapons. This has meant that each has had to develop its domestic nuclear sector without recourse to much assistance from outside. India, in particular, has very ambitious nuclear plans, but suffers from a shortage of good uranium resources. It has based its programme on the use of as much recycled fuel as possible and notably on fast reactors and the subsequent development of full-scale thorium-based reactors, as it has significant thorium reserves.

Neither India nor Pakistan are ever likely to sign the NPT (on the basis that the treaty discriminates against them as second class nations and refuses what they see as their legitimate right to possess nuclear weapons for defensive purposes). Other ways are being sought to end their isolation by wider diplomatic efforts and the recent proposed agreement between India and the United States is in this vein. Difficult issues surrounding other countries that have signed the NPT, but are accused of ignoring its provisions, have occupied a lot of media attention in recent years. Iran and North Korea have both faced economic sanctions for their alleged activities.

Very few countries possess the full range of facilities required to carry out all steps of the nuclear fuel cycle. The degree of specialisation in the nuclear fuel industry clearly contributes to the overall economic efficiency of the nuclear fuel markets, as it would be prohibitively expensive for a country with a small or fledgling nuclear power programme to develop all the necessary fuel cycle facilities. International trade in uranium and nuclear fuel cycle services is a necessity for the production of nuclear electricity in most of the countries presently using nuclear power.

The social, political and economic importance of the security of electricity supplies means that assurance of fuel supply is of overriding importance for utilities. Diversity of supply sources is often the main way that utilities ensure they will receive sufficient nuclear fuel to meet their requirements, particularly in countries with no domestic production. There are now plans to offer supply assurance for any new nuclear country renouncing the right to build domestic proliferation-sensitive enrichment or used fuel reprocessing facilities.

When the General Agreement on Tariffs and Trade (GATT), the main treaty governing international trade, was established in 1948, trade in fissionable and related materials was excluded from its provisions on security grounds. Nuclear trade is also outside the scope of the World Trade Organization (WTO). Thus there is no multilateral framework for the conciliation of disputes, such as the ‘dumping’ cases raised in 1991 in the USA against uranium producing countries from the former Soviet Union. Such disputes must therefore be resolved through bilateral negotiations and agreements between the exporting and importing countries.


Marine routes present the greatest challenge, with long diversions commonplace

The main direct government barriers to trade in uranium and nuclear fuel services are the import tariffs on fabricated fuel imposed by many countries, the uranium export monitoring policies of Australia and Canada, and the uranium import policies of the USA and the European Union (particularly in relation to imports from the former Soviet Union). These have all been relaxed somewhat in recent years but still have some impact on the market.

In addition, Russia is very protective of the fuel supply contracts for any reactors it sells outside its own territory, effectively leading to a continued segmentation of the market by reactor type. The main impact of the US restrictions is now to prevent local utilities from contracting directly with Russian suppliers for enrichment services. This is facing increasing pressure from both sides, who would very much like to do business with each other, and is therefore likely to ease over time.

Concerns about proliferation of nuclear weapons and the imposition of some trade restrictions to protect domestic producers have led to a web of rules and regulations concerning the movement of nuclear materials. The basis for these rules is the concept of ‘origin’ of the material. This is common throughout all world trade (largely because of the imposition of tariffs and anti-dumping rules) but is particularly important owing to the proliferation concerns in nuclear. The first origin assigned to a nuclear material is the mining origin of the original uranium but it acquires other customs origins at each stage of the fuel cycle, namely conversion, enrichment and fuel fabrication. The concept of ‘substantial transformation’ is important, as this is where the customs origin changes. However, this term is defined differently in various countries, so there is no harmonised and comprehensive international set of rules on origin. Nuclear materials also have ‘obligations’ attached to them, which are rules assumed by importing governments in accordance with the requirements of the governments of supplying countries. Typical obligations are those imposed by uranium exporting countries on the use of the material. For example, Australia has only exported uranium to France on the basis that it will not be used for military purposes.

There is also substantial swapping or exchanging of nuclear materials. As materials are fungible (in other words, easily substituted by something physically its equivalent) this is, in theory, quite easy but in practice is a hugely complex matter. Obligations and sometimes the origin of nuclear material can be swapped and this accomplishes various goals, chiefly the reduction of transportation cost and risk.

Indeed, transportation has become probably the biggest concern within nuclear commerce. Given the degree of specialisation that takes place in the nuclear fuel cycle, there is accordingly the need to move materials around the world, with any interruptions to this likely to have substantial consequences, financial and other. All procedures employed are primarily designed to ensure the protection of the public and the environment. Nevertheless, most transports of radioactive materials are not nuclear fuel cycle related, as they are used extensively in medicine, agriculture, research, manufacturing, non-destructive testing and minerals’ exploration.

The international shipment of radioactive material – known as Class 7 under the United Nations’ dangerous goods code – is becoming increasingly difficult, with fewer shipping companies and ports willing to accept this cargo. Marine routes present the greatest challenge, with long diversions commonplace, notably in relation to shipments of uranium and other ‘front end’ nuclear fuel materials and higher-activity radioisotopes. In South America and southern Africa, suppliers sometimes have to transit another country to find a port willing to accept their cargo. From the standpoint of the carriers and ports, Class 7 clearly represents disproportionate difficulty compared to the small amount of business it provides. Because of the complex procedures surrounding Class 7 and differences in interpretation of international regulations, vessels have been held up, incurring significant costs. In addition, as nuclear cargo needs to be shipped according to a route approved by the competent authority, it reduces the flexibility to change routes and modes.

In summary, by comparison with the trade in agricultural commodities, it can be argued that the rules and regulations in force today are not particularly onerous and should not prevent new countries acquiring power reactors if they wish to do so. Establishing enrichment and used fuel reprocessing facilities in such countries usually makes little economic sense, while offering them fuel assurance through international intergovernmental arrangements caters for the security of supply risk. With the general easing of governmental restrictions on nuclear material flows, it is concerns about transport that are now threatening the future of nuclear commerce. At the very least, they impose substantial cost increases, but also threaten security of supply. They are being addressed by establishing a better dialogue between governments, the industry and the contractors themselves. Both port and carrier shipments needs to be freed up in order to provide the confidence that is needed for a sound industry future.

Author Info:

Steve Kidd is Head of Strategy & Research at the World Nuclear Association, where he has worked since 1995 (when it was the Uranium Institute). Any views expressed are not necessarily those of the World Nuclear Association and/or its members

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