An Effective Export Control Regime for a Global Industry

An Effective Export Control Regime for a Global Industry Title: An Effective Export Control Regime for a Global Industry Produced by: World Nuclear Association Published: April 2018 Report No. 2018/001

This report reflects the views of industry experts but does not necessarily represent those of any of the World Nuclear Association’s individual member organizations. Contents

Executive summary 3

1. Introduction 5

2. International trade in nuclear materials, components and technology 6

3. The international export control regime for nuclear energy 8

4. Towards a risk-based export control regime 13

5. Recommendations 18

Executive summary

Nuclear energy is making a growing contribution to low-carbon electricity supply around the world. Annual trade in nuclear fuel, reactor systems and components has the potential to increase from about $14 billion today to nearly $40 billion by 2035. Achieving this potential could depend in part on the introduction of a more streamlined and flexible approach to trade, as has occurred in other strategic sectors.

Export controls aim to preclude states and unauthorized entities from acquiring materials, equipment and technology that could be used to make a nuclear or radiological weapon. An overarching regulatory framework is provided by the International Atomic Energy Agency (IAEA) but authority for controlling the increasingly international trade in nuclear technology, goods and services rests with national governments through an exception to the General Agreement on Tariffs and Trade. Unfortunately, disparate and unevenly applied licensing of nuclear exports by national export control authorities can excessively hinder lawful and compliant international trade in nuclear materials and technology. An effective nuclear export control regime should be risk-based, internally consistent and well-communicated, and avoid national disparities in licensing.

Regulations on the transfer of technology can also affect the nuclear community’s scope for international cooperation, including safety-related information exchange and the rendering of assistance between nuclear power plant operators. This means, for example, that nuclear facility operators and experts at the World Association of Nuclear Operators cannot always communicate directly with a plant that needs assistance.

All Nuclear Suppliers Group (NSG) participating states have a safeguards agreement with the IAEA and most are also signatories to the amended Convention on the Physical Protection of Nuclear Material. Many governments continue nevertheless to add an extra layer of scrutiny to the licensing process. In principle, exports to recipients whose facilities are under safeguards should not be considered a significant proliferation risk.

The degree of scrutiny accorded to civil nuclear exports should be risk- based. A nuclear power reactor subject to international safeguards poses a relatively low technology risk with respect to proliferation. The same is true for components, spare parts, and maintenance or repair services for that facility. Nuclear fuel assemblies made of low-enriched uranium pose a slightly greater proliferation risk than a nuclear reactor itself (which cannot operate without fuel). However, nuclear fuel should not be subject to a requirement for licence approval prior to shipment between NSG participating states, as they have accepted IAEA monitoring and will have an adequate physical protection regime in place. In these situations a general authorization for low-enriched fuel exports with a simple reporting requirement to the strategic goods control authorities of the countries involved in the shipments should provide sufficient assurance.

Enrichment and reprocessing technologies are associated with a higher proliferation risk and there is thus greater justification for licensing each transaction through an individual application for export.

The world nuclear industry contributes to countering proliferation through robust internal compliance programs at company level to ensure that

3 transactions do not involve suspect parties. Yet most export control authorities do not issue general export licences for nuclear-related items, even though they do issue such licences for certain non-nuclear dual-use items in, for example, the aerospace and defence industries. Nuclear exporters should be able to gain a status similar to authorized (or trusted) economic operator programs used by customs authorities provided they apply diligently a robust and comprehensive internal compliance program.

Resources can be better employed if exporters and governments made greater use of risk assessment. Companies should be able to direct their efforts to those areas where a proliferation risk exists and to reduce the burden of compliance with a licensing process where the proliferation risk is already controlled by like-minded governments. Destinations of concern could be checked out (‘red flagged’), while those that are already under international safeguards could be accepted as eligible to be fast-tracked.

The NSG should do more to exchange information and engage with the industry. A forum for industry-regulator cooperation in the export control and non-proliferation area involving the relevant inter-governmental organizations including the IAEA, NSG, Wassenaar Arrangement, the World Customs Organization, and the UN Office for Disarmament Affairs would beuseful. The International Framework for Nuclear Energy Cooperation could act as a forum for the discussions. Agreement on a road-map for streamlining the international export control regime would be a useful early output. A further deliverable could be a first draft of an international standard for export control compliance developed through the International Organization for Standardization.

The World Nuclear Association is ready to collaborate in such a forum to assist in building a more effective and efficient export control regime.

4 1 Introduction

The civil nuclear power industry Nuclear energy has failed to grow operates under a special regulatory at the same rate as that of energy regime designed to ensure a high consumption or other clean energy level of safety and to safeguard sources. Trade in nuclear goods its technology against misuse. An and services has lagged behind overarching regulatory framework general international trade expansion. is provided by the International There are many reasons for the lag Atomic Energy Agency (IAEA) but in trade and investment in nuclear authority for controlling international energy over the past thirty years. trade in nuclear technology, goods These can be grouped under three and services rests with national headings: economics; a partial governments. Inevitably there are perspective towards safety; and differences in regulation and a unnecessary regulatory barriers. web of bilateral and multilateral Electricity markets often do not agreements has been built up since value the social and environmental the 1950s. These differences and advantages that nuclear energy uneven licensing procedures for offers in terms of around-the-clock nuclear exports can hinder lawful reliability and a small environmental and compliant international trade in footprint. Secondly, society tends to nuclear materials and technology ignore the health impacts of fossil and safety-related information fuels and be lopsidedly apprehensive exchange. about nuclear safety. Yet the need for nuclear energy to replace Nuclear power developed as a dispatchable fossil-fuelled thermal state-controlled industry in its early power plants could not be greater in years. Then, through government- the face of looming climate change. to-government agreements, Thirdly, diverse licensing processes reactor technology began to be introduce additional compliance made available to a wide range costs, especially for international of countries. The creation of IAEA supply chains. Additionally, in an safeguards enabled nuclear increasingly interconnected world, exports to take place, with the US- divergences in licencing practice organized Coordinating Committee offer opportunities for finding ways to for Multilateral Export Controls circumvent the rules. (CoCom) relaxing its embargo on nuclear exports provided that This report examines one aspect the exports would be subject to of the international regulatory international safeguards. Thus, the regime: the licensing regime for trade control framework began to nuclear exports. The World Nuclear facilitate as well as restrict nuclear Association proposes changes to cooperation. International trade in the export control system that will nuclear materials and technology for simplify, streamline and modernize peaceful purposes has grown and these procedures whilst maintaining there is now a competitive global international safety and security. market in existence. An international Governments can encourage the supply chain has emerged, development of an international although it remains a nationally nuclear energy industry operating controlled system. Regrettably, to the highest of standards by the international export control rules removal of some of the procedural were established informally and obstacles that are hindering are therefore examples of soft law legitimate trade and exchange of rather than being embedded in information and by fostering a level international treaties. playing field for compliance.

5 International trade 2 in nuclear materials, components and technology

There are 448 civil power reactors domestic markets, the leading in the world today. Fifteen countries vendors are, for the most part, have reactors under construction, internationally diversified in terms and of these eight entail foreign of the corporate make-up and their reactor designs and contractors. supplier base. A small number of additional countries have embarked upon According to International Trade nuclear programs over the last Centre statistics, the estimated three decades, notably China, value of world exports of radioactive which started nuclear power plant chemical elements, including natural construction in 1987, but also and enriched uranium, thorium, including United Arab Emirates fabricated and irradiated fuel, and (in 2012), Belarus (2013) and radioisotopes in 2016 amounted to Bangladesh (2018). Several more $7.7 billion. The export of natural countries have firm plans to embark uranium accounts for well over half on nuclear projects.1 of this international trade. Around 30 percent of the value represents International trade in reactor systems exports of enriched uranium.3 and components has the potential Natural uranium is mined in around to reach $24-30 billion a year by 20 countries. It is converted into 2035, compared to $6-7.5 billion a suitable form for enrichment by currently.2 There are today more companies including Cameco, than ten consolidated technology China National Nuclear Corporation, vendors offering their technology and ConverDyn, Orano, and Rosatom’s 1 World Nuclear Association, 2017, The services across much of the nuclear TVEL. There are four major suppliers Nuclear Fuel Report: Global Scenarios for Demand and Supply Availability 2017- fuel cycle. They are Candu Energy, of enriched uranium to the world 2035, London: World Nuclear Association. China National Nuclear Corporation market – Orano, Rosatom’s 2 World Nuclear Association, 2016, The and the Chinese State Power Techsnabexport (TENEX), URENCO World Nuclear Supply Chain: Outlook Investment Corporation, Framatome, and Centrus Energy Corporation 2035, London: World Nuclear Association: pp. iii and 36-38. UN COMTRADE/ ITC GE and Hitachi, Korea Electric – and several domestic suppliers trade statistics for commodity product Power Corporation, Mitsubishi in Argentina, Brazil, China, India, group HS 8401 (Nuclear reactors, fuel Heavy Industries, the Nuclear Power Iran, Japan and Pakistan. Twelve elements ‘cartridges’, non-irradiated, Corporation of India, Rosatom, fuel fabricators supply low-enriched for nuclear reactors; machinery and apparatus for isotopic separation; and Toshiba, and Westinghouse. In fuel assemblies, of which Cameco, parts thereof) shows exports of $5.3 addition, other significant technology Global Nuclear Fuel (a partnership billion in 2015 and $3.9 billion in 2016. vendors are active in the international of General Electric, Toshiba 3 UN COMTRADE/ ITC trade statistics market, including Babcock & Wilcox, and Hitachi), Orano, TVEL and for commodity product groups HS China General Nuclear, Doosan, Westinghouse are the largest. 2844 (radioactive elements, isotopes, compounds and mixtures), HS 284410 and Škoda. Most have developed (natural uranium, its compounds and a supply chain that is increasingly Competitive pressures are alloys) and HS 284420 (enriched uranium, global in scope. The World Nuclear encouraging the localization of plutonium compounds and alloys). The reported value of exports in 2016 of $7.3 Association’s 2016 report The World manufacturing, joint ventures billion is understated because Ukraine Nuclear Supply Chain: Outlook 2035 and international procurement of and Uzbekistan have not yet reported their lists 240 major independent suppliers systems and components for nuclear trade statistics for these product groups. of nuclear grade structures, systems, applications. As a result, production On the basis of mine production data the missing data would boost the total value components and services. While the is located in several jurisdictions of exports by $365 million in 2016. industry remains weighted towards with materials, semi-processed and

6 finished fabrications perhaps crossing incompatible with each other they call several borders prior to reaching for active management. the final destination for assembly and installation. Services are also Despite the development of regional performed in different countries either free trade areas, such as the as a result of sub-contracting or European Union, the North American through the participation of specialist Free Trade Area, the Asia-Pacific divisions of the same transnational Economic Cooperation area and corporation or industrial group. others, export controls on nuclear Globalization, in short, is as much a technology, reactor components part of the civil nuclear scene as it is and radioactive materials are still in other industries. exercised exclusively on a national basis. Article XXI of the General The rapid development of Agreement on Tariffs and Trade telecommunication has facilitated (GATT) allows governments to the intangible transfer of information protect their essential security while the growing amount of personal interests by exempting fissionable travel means that people can carry materials and the implements of knowledge with them on electronic war from the treaty’s obligations to devices. Knowledge management remove barriers to international trade. processes are required within This situation is unlikely to change organizations to protect intellectual in the foreseeable future but steps property and ensure compliance with can be taken by both suppliers and export controls, but also to facilitate export control authorities to facilitate learning and share experience, legitimate trade in nuclear materials, especially in relation to safety. components and technology and Though these objectives are not safety-related information exchange.

7 The international export 3 control regime for nuclear energy

Strategic export controls are part of to conclude a comprehensive governments’ armoury to prevent safeguards agreement with the weapons of mass destruction from agency to ensure that fissionable being acquired by unauthorized materials are not diverted for military entities. They complement the other purposes. This obligation was elements of non-proliferation/ counter- strengthened through the adoption terrorism strategy to protect the public of the Treaty on the Non-Proliferation against such threats and to pursue of Nuclear Weapons (NPT). States and prosecute those responsible. already possessing nuclear weapons were not obliged to accept IAEA Implementing the strategic export safeguards but most opened up control regime is achieved through a their civil nuclear facilities to IAEA number of measures: inspectors voluntarily. States that • Legislation to establish the do not accept IAEA surveillance appropriate competencies and and inspection are excluded from enforcement processes; international cooperation and trade involving nuclear technology. • Regulation to define the technologies, goods, services IAEA member states are expected and materials to be controlled (a to introduce laws and regulations to control list); control the management of nuclear • Export licensing of defined technology, nuclear-related activities technologies, goods, services and and nuclear materials.4 These norms materials; cover the control of imports and • Border control activities (e.g., exports, amongst other elements. intelligence gathering, detection, After the NPT came into force in inspection, interception); 1970, several signatories formed an • Financial sanctions on specified informal inter-governmental grouping in 1971, known as the NPT Exporters parties; and, Committee or Zangger Committee • Awareness-raising measures, public (after its first chairman Claude information and outreach to industry. Zangger), to agree which technologies (such as uranium enrichment This report focuses on the export technology), radioactive sources licensing measures and makes and fissionable materials should be recommendations on this area and covered by export controls. It sought on related industry outreach. 4 IAEA, 2016, Guidance for States to provide a common interpretation of Implementing Comprehensive Safeguards Article III.2 of the NPT, which requires Agreements and Additional Protocols, Background governments to control nuclear IAEA Services Series No. 21, Vienna: p. 9. The International Atomic materials and certain other materials 5 Australian Safeguards and Non- Proliferation Office, 2009, Nuclear Trade Energy Agency (IAEA) was and equipment. The Zangger Outside the Nuclear Suppliers Group, established in 1957 to serve as an Committee agreed a list of goods that Briefing Paper: p. 1. States with civil intergovernmental forum for scientific ‘trigger’ the requirement to introduce nuclear capability outside the NSG and technical cooperation in the export controls and assurances include three which have never been NPT signatories (Israel, India and Pakistan) peaceful use of nuclear technology that the importing state implements and the Democratic People’s Republic and to provide international IAEA safeguards. This is the so- of Korea (North Korea), which withdrew safeguards against its misuse. All called ‘trigger list’. The guidelines (or from the NPT in 2003. India, Pakistan and Namibia are candidates for NSG non-nuclear weapons states that ‘common understandings’) are not membership. are IAEA members are required legally binding.

8 The Nuclear Suppliers Group (NSG) authority in the exporting state. arrangements are agreed). The was set up in 1974 by a number of The guidelines were also updated NSG’s participating governments countries adhering to the NPT to to include the ‘Non-Proliferation have agreed a system for notifying issue guidelines on safeguarding Principle’, whereby an exporting each other of any decisions to restrict and controlling the international country’s government must satisfy exports to a particular country. trade in nuclear and related dual-use itself that the transfer of technology They apply the guidelines to each technology, equipment and materials. or export of goods and services will other as well as to states that are The NSG’s guidelines originally not contribute to the proliferation of not members of the NSG. States included two elements: a ‘trigger list’, nuclear weapons or pose a risk of can choose to adhere to the NSG which was more comprehensive than nuclear terrorism. If there is doubt guidelines without participating in that of the one maintained by the concerning an importing country’s the NSG. Most trade of nuclear Zangger Committee, and ‘guidelines’, government’s intentions to comply technologies, equipment and which set out the circumstances with its commitments under the NPT materials is either between countries under which nuclear exports could (or other equivalent treaties), then that participate in the NSG or involves take place. the transfer or export concerned a participating state as either a buyer must be prohibited. In some cases or a seller, although there are some In the early 1990s, as the international the exporting country’s government notable exceptions.5 community became more aware of may request assurances from the the existence of clandestine nuclear importing country’s government The NSG and Zangger guidelines are weapons development programs in that the goods or technology to disseminated by the IAEA. certain countries, the NSG guidelines be supplied will not be used to were revised to address the risk that make a weapon. As the NSG is not In addition to the Zangger and a state could covertly import strategic linked to the NPT, or to any other NSG regimes, all governments technologies. The guidelines body of international law, these are required to take measures to concerning the trigger list (part 1 of measures were not legally binding on prohibit unauthorized entities and the guidelines) were broadened to participating states. individuals from acquiring or using require the application of full-scope nuclear weapons and sensitive safeguards in the importing country Under the NSG arrangements, materials and technology, under UN as a condition of export. A second countries producing the defined Security Council Resolution 1540 ‘dual-use list’ was added (part 2 of technologies, software, equipment of 2004. International cooperation the guidelines) covering technologies and materials may only export these mechanisms under the amended whose export would not trigger a to those countries that have accepted Convention on the Physical Security requirement for IAEA safeguards the full-scope safeguards applied of Nuclear Materials (1987 and 2017) but which would nonetheless by the IAEA to their nuclear facilities and the International Convention for require a licence from the national (unless alternative exceptional the Suppression of Acts of Nuclear Terrorism (2007) have also been Participating governments of the Nuclear Suppliers Group (48 countries) established for detecting, countering North America: Canada, Mexico, Europe: Austria, Belarus, Belgium, Bulgaria and punishing acts of: theft and United States of America Croatia, Cyprus, Czech Republic, Denmark, smuggling of materials; the unlawful Estonia, Finland, France, Germany, Greece, release of radioactive sources or Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, detonation of devices; and sabotage Poland, Portugal, Romania, Russian Federation, or attacks on nuclear facilities. Serbia, Slovakia, Slovenia, Spain, Sweden, The conventions oblige states to: Switzerland, Turkey, Ukraine, United Kingdom safeguard all radioactive and nuclear South America: Argentina, Brazil materials (including military stocks); return all stolen materials and devices Asia: China, Japan, Kazakhstan, to the country of origin; prosecute Republic of Korea or extradite terrorist suspects; and Africa: South Africa Oceania: Australia, New Zealand render assistance in a crisis.

9 A large number of countries have Export licences can take one of agreed an ‘Additional Protocol’ with several generic forms: the IAEA, since 1997. The model • General licence – applies to a protocol is aimed at strengthening broad category of controlled items the safeguards system and places and requires a simple declaration additional reporting requirements by the exporter of the goods on IAEA member states. Article 2 (a) and services to be exported; (ix) requires governments to provide it is normally granted under a information on the export of nuclear streamlined procedure or requires equipment and certain non-nuclear no prior authorization or even materials (IAEA member states are subsequent notification. obliged to report on nuclear material • Individual licence – requires an transfers as part of the general application from the exporter safeguards regime). If requested, for the export of defined goods, governments must also provide services, or technologies to a 6 information on imports. It should be specified destination and/or an noted that although natural uranium end-user but may be granted for (uranium oxide, U3O8) is a controlled multiple shipments; the export material and must be protected control authority may consider that according to prudent practice, it is an assurance is needed from the not capable of undergoing fission importing country’s government until after it is converted into uranium (e.g. a note verbale) on the use to

dioxide, UO2. Uranium mines may be made of the exported item by be inspected by the IAEA under the the end-user prior to issue of the terms of the Additional Protocol, but licence. the mines and mills are not subject • Project licence – may be issued to the full safeguards applied to where a substantial project nuclear facilities. involving capital expansion or repair of a facility would otherwise Export controls require multiple applications by Export controls aim to preclude an exporter; the licence would be states and unauthorized entities from normally granted for a specified acquiring materials, equipment and period of time. technology that could be used to make • Global licence – covers goods a nuclear or radiological weapon. They and services that are being are not intended to hinder legitimate exported as part of a government- trade and exchanges of information to-government agreement and or persons. Governments recognize is issued to the exporter (who this point and in many cases have is under contract to one of the instituted target response times to government parties) on the basis applications for export licences so of a declaration by the exporter as to provide greater certainty to through a streamlined procedure. the exporter and avoid unnecessary delay. Good communication between National and regional export control the exporter and the licensing regimes vary in terms of the types of authority also assists both parties licence they are prepared to issue. in assessing the proliferation risk 6 IAEA, 1997, Model Protocol Additional to Most export control authorities do Agreement(s) Between the IAEA and State(s) attached to the transfer. Inter-agency not issue general export licences for the Application of Safeguards, INFCIR/540. communication is also important, as for nuclear-related items, even Annex II of the Additional Protocol specifies several agencies may be involved in though they do issue such licences the equipment and non-nuclear materials that should be reported to the IAEA in the event of export control, including the customs for certain non-nuclear dual-use their export or import. and border services. items. This policy puts the nuclear

10 industry at a disadvantage in excludes the applications made by comparison with, for instance, the the exporter’s many suppliers under aerospace and defence industries. its sub-contracts.) In a globalized world economy, transnational companies need to be Almost all NSG participating able to undertake technology transfer countries control nuclear exports and move sub-components and through the issue of individual people from one division to another licences, whereby an exporter is across national borders. A general permitted to deliver a specified item licence would allow a company to a single end-user. Some export this freedom to transfer technology, control authorities issue multi-annual sub-components and people export licences for the export of the between specified jurisdictions. At same item to the same customer. the moment Canada and the USA Licences for multiple shipments of are able to offer general licences the same item to the same customer of this sort and provision exists for are also available. such a general licence within the European Union’s regulation. The Re-export of an item after its delivery Union General Export Authorization – for further manufacturing work to (EU001) permits exports of some be performed or assembly or testing dual-use items but not those in – is hindered by an over-reliance on Category 0 (nuclear technologies individual licensing. and materials) to Argentina, Australia, Canada, Iceland, Japan, Republic Technology is defined by the NSG of Korea, New Zealand, Norway, as the information necessary for South Africa, Switzerland, Turkey the development, production or and the USA. There also exists the use of controlled items. It may take Community General Licence for Intra- the form of ‘technical data’ (e.g., Community Trade but its application blueprints, calculations, diagrams, to nuclear technology is restricted to formulae, models or specifications) source materials (and some special or ‘technical assistance’ (e.g. fissile materials such as low enriched knowledge and skills, instruction uranium) and their related technology and training, or consulting services). and software. The 1996 Wassenaar Arrangement on Export Controls for Conventional Only the USA provides exporters Arms and Dual-use Goods and with the opportunity to apply for a Technologies has the same definition single individual licence covering the but provides additional examples supply of a complete reactor (plus of what constitutes technical data the initial fuel-loading and supply and technical assistance. In addition of spare parts), in effect granting a the USA treats foreign personnel project licence. In other jurisdictions at US nuclear facilities as potential this type of licence is not issued and recipients of sensitive technology so exporters must apply for several (‘deemed exports’). individual licences. For one on-going nuclear construction project outside Regulations on the transfer of of the USA this has required the technology affect the civil nuclear exporting reactor vendor to make energy community’s scope for 700 applications and obtain an equal international cooperation. Since number of import certificates; all of regulatory approaches differ in these from governments that profess practice between countries, operator- to have removed trade barriers to-operator cooperation must avoid between themselves. (This figure crossing certain national borders to

11 side-step the need to apply for an eased to a degree in the USA by the export licence. It means that some general authorization for the transfer licensed nuclear operators and of non-sensitive nuclear technology experts at the World Association of to the majority of NSG participating Nuclear Operators (WANO) cannot states and to the IAEA. always communicate directly with a plant that needs assistance. Greater usage of general licences Communication is instead routed and project licences need not indirectly through countries whose diminish the depth of information governments are known to permit that governments are required such exchange of information without to supply to the IAEA under the prior authorization. Additional Protocol since export control authorities will continue The policy on electronic transfers to receive such information in the of technology also needs to be application for a project licence or if examined at the international level a requirement for notification of an to scope out a more consistent export (or import) has been included and coherent strategy – this is under a general licence. particularly so on issues such as: server location (including cloud A common international approach computing); use of laptops and would assist companies in evaluating hand-held devices abroad; access the degree of security provided by third party IT support services by their corporate procedures for and encryption of material. As is well data storage on portable devices known, electronic communication and could offer the reassurance may be routed through servers necessary to government agencies based in many different countries and the international community. It and telecommunication providers could permit authorized company do not offer designated routing that employees, such as sales personnel will preclude particular jurisdictions. or maintenance technicians for Networks are also vulnerable to example, to access controlled intrusion by state and non-state information and data remotely entities. while travelling between eligible destinations. Individual licensing of technology transfer also deters international Governments participating in collaboration in tendering, potentially the NSG should try to iron out reducing the opportunities for divergences in their licensing obtaining best value in bidding for approaches in order to level the work and the cross-fertilization of playing field and adapt the export good practice and the diffusion of control regime to the interconnected innovation. These barriers have been world of the twenty-first century.

12 Towards a risk-based 4 export control regime

Fuller collaboration between the but lack specialist knowledge of nuclear industry and governments is industry sectors and technological critical to strengthening the strategic developments. The resources for export control regime and nuclear investigating a particular end-user or security more generally. There is a potential weak links in the supply and shared responsibility for safeguarding logistical chains are always going nuclear technology from misuse, to be constrained and governments to which both the industry and the must be prepared to provide public authorities can contribute. For guidance on where they consider the industry, ‘compliance’ implies the the risks lie in relation to specific existence of clearly communicated destinations and end-users (who may requirements on what must be be hiding behind ‘front companies’). done and what types of activity are prohibited. From the viewpoint of the A related issue is that the method export control authority, an application used by export control authorities for an export licence needs to be to determine the degree of risk is accompanied by sufficient information not clear to exporters. Canada, for to enable a determination to be example, provides general export made on the basis of the proliferation licences for nuclear technology, risk involved. Both parties require goods and services to a number of information to be able to: eligible destinations. There are also • Screen customers to check if they banned destinations, as a result are legitimate end-users or agents of UN Security Council mandates. of a legitimate end-user; But it appears that certain other • Understand the range of potential destinations are worthy of greater applications of the product and to scrutiny, even when the country is a ‘red flag’ proposed transactions fellow NSG government and signatory where the end-use is unclear; to the NPT. In such cases, the export control authority may request that the • Have confidence that the supply foreign ministry obtain an end-user and logistics chain is secure certificate from the importer that has against diversion; been certified by the government • Identify suspicious enquiries, concerned, which is usually a endorsements and paperwork; long-drawn out process unless a • Have confidence that an exporter’s nuclear cooperation agreement is in internal compliance program is place. The implication is that NSG adequate to undertake the above participating governments do not activities. apply the same level of export control in practice. The NSG and IAEA Assessing the risk of diversion or should encourage mutual recognition misappropriation is central to the among its participating governments licensing process and will depend to confirm that they have a consistent upon the quality of information level of exports controls in place and available to the exporter and are applying an appropriate level to the export control authority. of domestic control to ensure the Companies can be expected to physical protection and safeguarding be knowledgeable about their of nuclear material and facilities customers and suppliers but may within their jurisdiction. lack information about the overall situation in unfamiliar markets. There is no accepted method of risk Governments have more resources assessment. It appears that the risk than companies to monitor events is adduced from intelligence where and trends around the world suspicion about an organization’s

13 activities is aroused, or from geo- cooperation between national layer of scrutiny to the licensing political factors. Little advice appears security and policing services in process given the fact that in many to be offered by governments on combatting international terrorism, instances IAEA safeguards on how companies could in practice illicit trafficking and customs fraud. nuclear facilities already exist. In rate the proliferation risk posed by The regular bilateral exchange of principle, exports to recipients whose their products in relation to potential information between countries on facilities are under safeguards should destinations and end-users. exports and imports is another area not be considered a significant where cooperation between NSG proliferation risk. Conversely, Furthermore, there needs to be much participating states is possible. exports to unsafeguarded facilities closer liaison between the export – in states that have not acceded control function of governments and The safeguards regime on nuclear to the NPT or, say, to nuclear power the diplomatic and security wings. facilities, technology, equipment plant construction sites – must be The latter functions appear unaware and materials overseen by the IAEA checked out thoroughly. In all cases that the long delays experienced in is the backbone of the international the crucial factor is the status of the obtaining government-to-government non-proliferation system. One recipient: does the recipient operate assurances have a detrimental effect element of the regime is the control a safeguarded and appropriately on cross-border cooperation in of exports and imports by national secured facility or not? In the case nuclear new build, the refurbishment governments, which are obliged to of exports associated with the of existing nuclear power plants and report specified transfers to the IAEA. construction of a nuclear power plant, exchange of technical information Governments should also ensure a government will wish to assure to improve safety, to learn from that recipients in importing countries itself that the plant in question will other plants’ good practice or for do not misuse the technology, be placed under safeguards on its international procurement. The equipment and materials, and this commissioning. It will also want to process of issuing such assurances obligation has been strengthened check out the status of intermediate needs to be streamlined if it cannot by the adoption of Security Council recipients and system integrators, be eliminated altogether. Agreement Resolution 1540. who may be assembling the sub- on what should be fairly standard modules of the planned plant from assurances, particularly between But many governments appear components arriving from various NSG member countries, should be to have added an unnecessary locations and suppliers. afforded far greater priority. Figure 1. Model for a risk-based export control regime A missing element in the current inter-state system, which is based Technology on soft international law and avoids Risk multilateral or binding obligations by states, is the absence of a verification mechanism to check that end-users Reprocessing Individual Licence have not diverted fissile material or sensitive technology for non-peaceful Enrichment purposes. (The current system Exports Banned instead loads compliance onto General Nuclear Fuel commercial undertakings through, or for example, ‘catch-all’ licence Notiﬁcation Project conditions.) Governments within Power under Licence Reactors General the NSG should be encouraged Licence to recognize that they are each Nuclear Facility applying an appropriate level of Components domestic control to ensure the Free Destination physical protection and safeguarding Non- Trade NSG Embargoed Risk NPT of nuclear material and facilities. Area Improved inter-governmental cooperation in export control Facility under could be built upon the closer IAEA Safeguards

14 There therefore appears to be Thus companies engaged in no essential security interest in international trade in nuclear maintaining the exemption of nuclear technologies, good and services materials and technology from the should be able to obtain a general General Agreement on Tariffs and licence to undertake their business in Trade (GATT) since their end-use is accordance with the reporting (and subject to IAEA safeguards and to monitoring) conditions of the licence, the physical protection regime for where the destination for a controlled civilian nuclear facilities afforded by export is to another NSG participating signatories to the Convention on state. A project licence should be the Physical Protection of Nuclear required from the export control Material.7 authority of the state in which the reactor vendor is domiciled for the Streamlining the export control supply of a complete (or substantially system is essential for effective complete) nuclear reactor to another compliance. Companies should be NSG participating state. able to direct their efforts to those areas where a proliferation risk exists If the exporter was certified (by the and to reduce the administrative, customs service or an independent management and investigative body) as operating a robust and burden of compliance with a licensing comprehensive internal compliance process where the proliferation risk program, the export control authority is already controlled by like-minded would have the assurance that the governments. The adoption of a requisite notifications were being risk-weighted approach to assessing provided. proliferation will enable companies and export control authorities Nuclear fuel assemblies are to deploy their resources more composed of fissile material and effectively by focussing on higher risk therefore pose a slightly greater transactions. A model risk-weighting proliferation risk than a nuclear approach is shown in Figure 1. reactor itself (which cannot operate without fuel). However, as nuclear A nuclear power reactor subject to fuel is normally made of low IAEA safeguards poses a relatively enriched uranium it should not be low technology risk with respect subject to a requirement for licence to proliferation. The same is true approval prior to shipment within for components, spare parts, and the NSG, as these states have maintenance or repair services for that accepted IAEA monitoring under the facility. Therefore, under a risk-based agency’s safeguards arrangements. approach the export of components Thus there should be general and complete power reactors authorization for low-enriched fuel should be unrestricted within free exports with a simple reporting trade areas such as the European requirement to the strategic goods Union, subject to notification at the control authorities of the countries 7 The Convention on the Physical Protection of time of shipment. It should also involved in the shipments. Nuclear Material and its Amendment imposes be possible to export components a duty on signatory states to protect nuclear under general authorization, without Reprocessing technology is material and facilities against threats and malevolent acts and to recover and return a prior licence, to another country associated with the highest stolen materials. Governments are obliged that is a participating state in the proliferation risk since it involves to apply fundamental security principles set NSG, subject to notification being isotope separation from used nuclear out by the IAEA in relation to their physical provided to the strategic goods fuel that could potentially be diverted protection regime. There are 116 contracting parties to the amended convention, covering control authorities of the exporting to military applications. Similar all NSG participating states with the exception and importing countries concerned. considerations apply to enrichment of Belarus and Brazil.

15 technology, which could be used The standard would provide to enrich uranium to higher fissile verification that an organization was concentrations, suitable for some meeting international guidance and nuclear explosive devices, and national regulations on a range of there is thus greater justification for proliferation-sensitive security issues, licensing each transaction through including export compliance.8 an individual application for export. A risk-based approach would suggest The International Organization that individual applications for export for Standardization (ISO) has licences should be applied even developed a series of standards between NSG participating states to for risk management (ISO 31000 maintain a strong level of confidence series) and for supply chain security between states that they remain (ISO 28000 series). A standard committed to the goals of the NPT. for internal compliance programs relating to dual-use goods and In the case of countries that are not strategic technologies could be participating in the NSG and which developed within the ISO framework. have not ratified the NPT, all exports For example, ISO 28001: 2007 for of nuclear technology, goods and security management systems for services should be subject to prior the supply chain was designed to licensing on a case-by-case basis. assist meeting the criteria established States under a trade embargo relating by the World Customs Organization to nuclear technology are, of course, for authorized economic operator subject to a ban on relevant exports. status. Such an exercise would have to involve a range of industries, not An issue could arise from the simply the nuclear sector. Under possibility that a recipient of an the ISO system, organizations exported controlled item might in are certified to a standard by an turn re-export this. But much of independent accredited auditor. An the international trade in nuclear international standard would provide technology, goods and materials the benchmark for export control takes place between NSG authorities to award trusted economic participating states. Therefore, in operator status to companies and principle, these governments operate would bolster confidence in the risk- a system of export control already. weighted model outlined above. (An Where this is not the case, the export control authority would not exporting country and the importing be expected to automatically accept country may conclude a nuclear certification to the standard as a cooperation agreement (known as a sufficient basis on which to award “123 Agreement” in the USA), which trusted economic operator status commits the parties to peaceful and would be free to exercise its collaboration in using nuclear discretion in this regard.) technology under IAEA safeguards. There will often be a pre-existing Extending the trusted economic level of government-to-government operator program to embrace export assurance regarding the general control compliance also has the 8 See for example, Debra Decker and Kathryn usage of nuclear technology. potential to strengthen the overall Rauhut, 2016, Nuclear Energy: Securing the Future – A Case for Voluntary Consensus strategic export control regime. As Standards, Managing across Boundaries An industry-driven consensus the customs service already audits Program, Washington, DC: Stimson Center: standard could be developed to companies on their compliance pp. 6-7; see also Debra Decker and Kathryn demonstrate compliance with with other aspects of customs and Rauhut, 2016, The Quest for Nuclear Security Standards, Policy Analysis Brief, Muscatine, IA: international principles and guidelines border control, the extension of this The Stanley Foundation. and core national requirements. type of program to cover export

16 licensing compliance could prove upon non-binding inter-governmental cost-effective in many cases, though cooperation. It has evolved through not all companies would wish to agreement between a small number take this up. Such an arrangement of states which historically developed should facilitate transactions taking nuclear know-how and assumed that place between units within the same this knowledge could be contained company or industrial group and within national borders and released between companies undertaking to other countries only on specific repeat business. terms that they themselves dictated. Globalization has invalidated these A compliance system that assumptions. The civil nuclear strengthens the capability of the industry has outgrown the boundaries business community in preventing but at the same time its expansion proliferation will provide greater has been constrained by strict assurance among governments licensing requirements imposed by that the strategic export control national authorities. regime is working effectively. Defining an international standard Technological, economic and for compliance related to dual-use environmental challenges threaten to goods and strategic technologies overwhelm the capacity of national will take several years. Nevertheless, public institutions to manage embarking upon a common track to systemic stresses, according to the strengthening and streamlining the World Economic Forum. The world international export control regime, has entered an unsettling period with an industry-driven road map of geopolitical flux and multilateral endorsed by the inter-governmental rules-based approaches have organizations (e.g. IAEA, NSG, World become frayed. The response should Customs Organization and UN Office therefore be interconnected, involving for Disarmament Affairs), would collaboration between governments, be an excellent starting point. The international organizations, civil International Framework for Nuclear society and enterprises.9 Cooperation Energy Cooperation (IFNEC), an between like-minded governments intergovernmental body, and the adhering to common principles World Nuclear Association could and applying equivalent controls provide a forum for the discussions. lies at the heart of putting collective The output could be a first draft security into practice. Governments of a standard for export control should be willing to permit trade compliance and milestones to assess and information exchange between progress towards developing an countries on the basis, firstly, that international standard on compliance they trust each other’s capability and through ISO. commitment to manage proliferation and security challenges and, The continued peaceful use of secondly, because the companies nuclear technology is constructed on involved are themselves trustworthy a foundation that is partly multilateral organizations, conscious of their and treaty-based and partly based responsibilities.

9 World Economic Forum, 2018, The Global Risks Report 2018, Geneva: World Economic Forum: pp. 5, 6-7 and 37.

17 5 Recommendations

Export controls aim to preclude requirement to the strategic goods states and unauthorized entities control authorities of the countries from acquiring materials, equipment involved in the shipments. and technology that could be used to make a nuclear or radiological Enrichment and reprocessing weapon. However, disparate and technologies are associated with a unevenly applied licensing of exports higher proliferation risk and there is hindering the scaling-up of nuclear is thus greater justification for energy’s contribution to a low-carbon licensing each transaction through an economy. These controls could also individual application for export. impede the exchange of safety- related technical information and The world nuclear industry assistance between nuclear power contributes to countering proliferation plant operators as part of industry through robust internal compliance lesson-learning and continual programs at company level to improvement. ensure that transactions do not involve suspect parties. Export The degree of scrutiny accorded control authorities should be able to to nuclear technology should be recognize good practice by offering risk-based. A nuclear power reactor authorized (or trusted) economic under safeguards poses a relatively operator status to companies low technology risk with respect that apply diligently a robust and to proliferation. The same is true comprehensive internal compliance for components, spare parts, and program to their operations. maintenance or repair services for that facility. Under a risk-based The Nuclear Suppliers Group and the approach the export of components International Atomic Energy Agency and complete power reactors should encourage mutual recognition should be made possible under among its participating governments general authorization, without a prior to confirm that they have a consistent individual licence, to another country level of export controls in place and that is a participating state in the are applying an appropriate level Nuclear Suppliers Group, subject of domestic control to ensure the to notification being provided to the physical protection and safeguarding national authorities of the exporting of nuclear material and facilities and importing countries concerned. within their jurisdiction. Within free trade areas, such as the European Union’s single market, The Nuclear Suppliers Group should shipments should be notifiable but do more to exchange information otherwise unrestricted. and engage with the industry. Industry-regulator cooperation in the Nuclear fuel assemblies made of export control and non-proliferation low-enriched uranium should not be area could be achieved through subject to a requirement for licence a forum involving the relevant approval prior to shipment between inter-governmental organizations Nuclear Suppliers Group participating including the International Atomic states, as these states have accepted Energy Agency, Nuclear Suppliers International Atomic Energy Agency Group, Wassenaar Arrangement, monitoring. There should be general World Customs Organization, authorization for low-enriched fuel and the United Nations Office for exports with a simple reporting Disarmament Affairs.

World Nuclear Association +44 (0)20 7451 1520 Tower House www.world-nuclear.org 10 Southampton Street [email protected] London WC2E 7HA United Kingdom

The World Nuclear Association is the international organization supporting the people, technology and enterprises that comprise the global nuclear energy industry. The association advocates the tripling of nuclear energy generation over the next three decades to provide 25 percent of global electricity production by 2050.

World Nuclear Association membership encompasses uranium mining, conversion, enrichment and fuel fabrication; reactor vendors; major nuclear engineering, construction, and waste management companies; and the majority of the world’s nuclear generation. Other members provide international services in nuclear transport, law, insurance, brokerage, industry analysis and finance.

An Effective Export Control Regime for a Global Industry considers how the strategic export control regime should be streamlined and modernized to facilitate lawful and compliant international trade in nuclear materials and technology and information exchange. Disparate and unevenly applied licensing of exports is hindering the scaling-up of nuclear energy’s contribution to a low-carbon economy. These controls can also impede the exchange of safety-related technical information and assistance between nuclear power plant operators.