Ensuring a 'soft Brexit' for the UK’s nuclear industry

24 November 2016

The general trend of "ever closer union" in Europe was abruptly upset on the 23rd June 2016, as British voters decided to withdraw from the European Union (EU) (commonly referred to as 'Brexit'). While there are many important Brexit-related issues to be sorted, one of the most critical issues relates to the UK's membership in the European Atomic Energy Community (Euratom), writes Vincent Zabielski.

The Euratom Treaty predates the formation of the EU, and while it's not considered to be a "foundational treaty" of the EU, the European Atomic Energy Community remains decidedly European - its members include all the members of the EU, and no country outside of the EU. The multi-billion-pound question is to what extent UK participation in Euratom should continue post-Brexit, and what happens if it doesn't.

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 the 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, and so the UK would be barred from participating in the discussions of the European Council, and have 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 decides to extend this period.

The exit procedures for membership in the European Atomic Energy Community 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 European Atomic Energy Community, with preparation for potential 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. Additionally, through bilateral nuclear cooperation agreements between Euratom and 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 United States, 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 of the 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 by a withdrawal of the UK 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 many nuclear supplier nations are 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 stand-alone 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.

Located in Luxembourg, the ESA 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 obligates 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, countries (like China) that have stand-alone bilateral nuclear cooperation agreement with the UK will find themselves in a very advantageous situation. Such a market disruption should be avoided if possible.

Considering all of the above, 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. For example, 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

Comments? Please send them to editor@world-nuclear-news.org

Vincent Zabielski is a senior lawyer in Pillsbury Winthrop Shaw Pittman’s Nuclear Energy practice and is based in London.