This research paper has been commissioned by the International Commission on Nuclear  Non‐proliferation and Disarmament, but reflects the views of the author and should not  be construed as necessarily reflecting the views of the Commission. 

NUCLEAR TRADE OUTSIDE THE NUCLEAR SUPPLIERS GROUP Briefing paper prepared by the Australian Safeguards and Non-Proliferation Office, with input from DFAT and other government agencies. January 2009

EXECUTIVE SUMMARY Most of the trade in nuclear relevant materials, equipment and technology is either between Nuclear Suppliers Group (NSG) members, or involves an NSG member as a buyer or a seller. Apart from trade in uranium ore concentrates, only a very small percentage of nuclear trade takes place outside legitimate trade by the members of the NSG. Although the nuclear trade that takes place entirely outside the context of the membership of the NSG is limited in volume, this trade poses significant non-proliferation challenges. While some of this trade involves legitimate secondary market sales/re-sales of NSG-controlled items by non-NSG members, much of the remainder of this trade is conducted by clandestine networks that seek to avoid detection and is either: • • •

in the form of common industrial materials that do not meet the purity or composition standards necessary to trigger NSG-type controls; in the form of components which might, with some plausibility, be argued to be non-nuclear in nature; or, most importantly in the form of undeclared export, re-export or diversion of NSG-controlled items manufactured in NSG member countries.

A. INTRODUCTION In response to concerns about the spread of technology that could contribute to the development of nuclear weapons, multilateral consultations between technologically advanced countries on the subject of nuclear export controls led to the establishment, in 1974, of the Nuclear Suppliers Group (NSG). To ensure harmonisation of national-level controls, the NSG agreed on lists of nuclear material, equipment and technology to be subject to export controls. Controlled items include those “especially designed and prepared for nuclear use”, which are generally referred to as “EDP” or “Trigger List” items and, in the 1990s a second list of more common items which may have some utility for nuclear applications but which also have non-nuclear uses, generally referred to as “dual use” items. Other than uranium ore concentrates (UOC), international trade in nuclear relevant materials, equipment and technology is dominated by the states1 that make up the membership of the 1. While formally it is more accurate to refer to “Governments participating in the NSG”, only a relatively small proportion of the trade that is being discussed in this paper is between governments or government entities,

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NSG.2 Approximately 30% of the UOC supplied into the world market comes from non-NSG states.3 Significant suppliers of UOC who are not members of the NSG include Namibia, Niger and Morocco. However, globally most sales of UOC are to NSG members. While the nuclear trade that takes place entirely outside the context of the membership of the NSG is only very limited in volume, this trade poses significant non-proliferation challenges – e.g. the apparent clandestine supply of a nuclear reactor by the DPRK to Syria had the potential to further destabilise a region of tension. Trade from within NSG member states in contravention of NSG guidelines can also be of serious proliferation significance – e.g. the supply of enrichment-related equipment to Iran. There are substantial difficulties in seeking to quantify the extent and volume of the clandestine elements of non-NSG nuclear trade as they are conducted with a view to avoiding detection and interdiction. Put simply, most of the trade in nuclear relevant materials, equipment and technology is either between NSG members or involves an NSG member as a buyer or a seller. In the case of trigger list goods, only a very small percentage of nuclear trade takes place involving goods that were not originally manufactured in NSG states (e.g. centrifuge components which were manufactured in Malaysia for export to Libya). In the case of dual use goods, trade in goods produced outside the NSG membership is higher (e.g. mass spectrometers manufactured under licence in countries such as Malaysia for export), although it should be emphasised that the trade in dual use goods involving NSG states is substantially higher than the non-NSG trade in such items. B. URANIUM ORE CONCENTRATES (UOC) Uranium is a common element and is present in measurable concentrations in a very wide range of mineral commodities. Increases in the market price of uranium have lead to increased uranium exploration and the exploitation of sources of uranium that were previously assessed as having marginal value. If suitable ores are available, many developing states with limited technical infrastructures are capable of producing UOC. Non-nuclear-weapon states (NNWS) that are party to the NPT are obliged to conclude comprehensive safeguards agreements with the IAEA. Comprehensive safeguards agreements require that NNWS report to the IAEA all shipments of uranium (and thorium) to other NNWS. While it is a matter of some concern that some 30 NNWS have not yet concluded the required safeguards agreements with the IAEA, none of these states is known to be able to export UOC. While there is nothing illicit or illegal about the great majority of non-NSG international trade in UOC 4 , it is the small volumes of illicit trade that are of proliferation concern. The proliferation significance of 50 tonnes of UOC shipped to pre-Gulf War Iraq in the 1980s was

private sector entities conduct most of the international trade in nuclear related materials, equipment and technologies. The use of the term “members” in this context is intended to cover both trade by the state itself and by persons and legal entities trading within the state’s jurisdiction. 2. Based on information in the World Nuclear Industry Handbook 2008 – Nuclear Engineering International, Southall UK. 3. Uranium 2007: Resources, Production and Demand, OECD/NEA 2008. 4. The percentage of non-NSG UOC purchased by NSG members or converted in NSG countries is very close to 100%.

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greater than the many tens of thousands of tonnes of legitimate trade in UOC taking place in that decade. UOC is typically composed of 60-85% uranium and requires substantial further processing before the uranium reaches a composition and purity suitable for use in nuclear activities. These steps of chemical treatment and purification are collectively referred to as “conversion”. Conversion services are traded on the international market. NSG members dominate the international trade in conversion services and technologies, but the processes themselves are similar to processes used for other mineral commodities (such as molybdenum and vanadium) and cannot be completely controlled. Non-NSG countries involved in conversion include India and Iran, but neither of these is trading conversion services on the international market. C. STATES WITH SIGNIFICANT5 NUCLEAR ACTIVITIES The IAEA lists 72 states as having significant nuclear activities.6 The IAEA list excludes Taiwan and the DPRK. 7 Of these 72 states, 41 are members of the NSG (there are 45 members of the NSG but Croatia, Cyprus, Malta and New Zealand have no significant nuclear activities). The current members of the NSG are: Argentina, Australia, Austria, Belarus, Belgium, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and the United States. This leaves 31 states which are listed by the IAEA as having significant nuclear activities5, but which are not members of the NSG. These states may be grouped as follows: 1. States that are in compliance with their NPT obligations (these states generally have limited nuclear activities and no independent capacity to produce nuclear equipment or technology); 2. States that are not parties to the NPT (each with substantial nuclear activities); 3. Iran – a party to the NPT, which is in non-compliance with its safeguards obligations, and which is seeking to develop substantial nuclear capabilities. 5. The term “significant nuclear activities” is used by the IAEA to refer to any state with any amount of nuclear material in a facility or location outside facilities, or nuclear material in excess of the exemption limits in IAEA information circular/153 (INFCIRC/153) paragraph 37. Many of the states listed by the IAEA as having “significant nuclear activities” however, have only small research reactors and have no independent industrial capacity for the production of nuclear materials or equipment. 6. http://www.iaea.org/Publications/Reports/Anrep2007/table_2-7.pdf 7. Taiwan is not recognised as a state but has six power reactors and working towards construction of a further two reactors. All nuclear facilities in Taiwan are subject to IAEA safeguards. NSG suppliers were involved in the construction of all Taiwanese nuclear facilities.

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As noted above, the DPRK is not included in the IAEA’s list of 72 states with significant nuclear activities and is discussed in a separate section of the paper. C.1 States with significant nuclear activities, in compliance with NPT obligations, outside the NSG The 27 states with significant nuclear activities5 that are in compliance with safeguards obligations but not members of the NSG are: Algeria, Armenia, Bangladesh, Chile, Colombia, Cuba, DR Congo, Egypt, Georgia, Ghana, Indonesia, Iraq, Jamaica, Libya, Malaysia, Mexico, Morocco, Nigeria, Peru, Philippines, Serbia, Syria8, Thailand, Uruguay, Uzbekistan, Venezuela, and Vietnam. These states generally have limited involvement in nuclear technology; the great majority only have research reactors, and are dependent on foreign suppliers (NSG members) for the materials, equipment and technology necessary to support their limited range of nuclear activities. Mexico is unique in the group as it has two working power reactors supplied and fuelled by foreign vendors based in states that are members of the NSG. While each of these the states remains dependent on NSG member suppliers for access to nuclear materials, equipment and technology, some of the states also have advanced technical manufacturing sectors that would be able to build complex items to order if given access to appropriate technical specifications and materials. This potential for guided manufacture was illustrated when a Malaysian firm, SCOMI, was found to be manufacturing specialised components for uranium ultra-centrifuges for export to Libya. A limited amount of legitimate non-NSG trade in NSG controlled items takes place amongst the states of this group. Mostly this trade takes the form of re-export of items supplied by NSG member states (e.g. precision machine tools, such as numerically controlled milling machines, that are traded within the automotive industry but can be used, inter alia, in centrifuge manufacture). As end-use and end-user certification is required for most NSG controlled items, such re-export usually will require the consent of the original supplier. Once again, it must be emphasised that the uncontrolled re-export or diversion of NSG controlled and supplied items from non-NSG to other parties remains an issue of proliferation concern (e.g. the re-export of precision measuring equipment manufactured in Japan from Thailand to Libya). C.2 States outside the NPT The three states that have never signed the NPT are India, Israel and Pakistan. All three states have demonstrated the capacity to maintain their existing nuclear fuel cycle activities with limited access to foreign supplied material, equipment and technology. Each would be dependent, to a greater or lesser extent, upon NSG suppliers for any major expansion or modernisation of their nuclear infrastructure.

8. Syria is currently under investigation by the IAEA for breaches of its safeguards obligations but, at time of writing, had not been found to be in non-compliance by the IAEA Board of Governors.

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India has four power reactors that were supplied by the US and Canada, under IAEA safeguards, before it tested a nuclear explosive device in 1974. India has indigenously constructed a further 13 unsafeguarded power reactors based, with minor modifications, on the original Canadian designs. India has ambitious plans to substantially expand its nuclear power generation capacity and was recently granted an exception by the members of the NSG to enable NSG member states to provide materials, equipment and technology necessary to support this expansion. While India is continuing its plans to develop a thorium based fuel cycle in parallel to the more conventional foreign supplied reactors, it is likely that foreign supplied technology will rapidly dominate the nuclear energy sector for many decades to come. India has already concluded nuclear cooperation agreements with the United States, Russia and France. Pakistan has two safeguarded power reactors (one supplied by Canada before the advent of NSG controls and one supplied by China before China became a member of the NSG). Since joining the NSG, China has announced plans to construct further reactors for Pakistan. China considers that these plans are covered by the “grand-fathering” provisions of the NSG guidelines (the NSG grand-fathering provisions are intended to apply to supply contracts that were signed before the supplier state joined the NSG). Pakistan developed an extensive procurement network in the 1970s and 1980s to obtain the materials, equipment and technology necessary for the operation of its enrichment program which was based on misappropriated centrifuge technology from the European consortium URENCO. The Pakistani procurement network was able take advantage of lax enforcement of dual use controls in many NSG states to obtain essential components and/or the technology to produce these components. The A.Q.Khan nuclear smuggling network was able to exploit the pre-existing Pakistani procurement network for the illegal transfer of nuclear materials, equipment and technology. The Khan network drew upon contacts in over 30 countries and both sought to gain access to existing NSG controlled materials and equipment and to manufacture specialised equipment for sale. Israel maintains one research reactor under IAEA safeguards and one unsafeguarded nonpower reactor. The IAEA conducts safeguards activities in India, Israel and Pakistan under an older form of safeguards arrangement that pre-dates the NPT. These older type agreements allow the IAEA to carry out limited inspection activities at specifically designated facilities in each state. None of the non-NPT states is involved in legitimate international export trade in nuclear technology or material, although as noted above Khan illicit trafficking network, which drew upon contacts in 30 countries, was based in Pakistan. C.3 Iran The IAEA Board of Governors found Iran to be in non-compliance with its safeguards obligations in September 2006 and reported this non-compliance to the UN Security Council in February 2007. Over a period of decades, Iran sought to develop an extensive clandestine fuel cycle within its borders in violation of the requirements of its CSA with the IAEA. Iran pursued an active program of deception and denial to conceal the extent and nature of its nuclear activities from the international community.

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Iran drew upon the resources of the Khan smuggling network and a range of front companies to gain access to Western technology (including from NSG members). Iran also put a massive effort into developing its indigenous capacity to manufacture a very wide range of the items needed to support its clandestine nuclear program. There is considerable concern among the international community that Iran may seek to export specialised nuclear items to other potential proliferant states. Iran is also continuing to seek to import nuclear-related items in contravention of UNSC resolutions. Russia is currently assisting Iran to build its first nuclear power plant at Bushehr. There is no credible open source information that suggests that Iran is exporting nuclear technology on the international market. D. DPRK The DPRK purported to withdraw from the NPT in 2003, but its status is unresolved. The DPRK’s largely indigenous nuclear reactor design and construction efforts were based on open-source information on technology developed by the British and French in the 1950s. This basic level of technical development could be achieved by many states if suitably motivated. This level of technology is capable of producing significant quantities of the materials needed for a weapons program but would be poorly suited to the development of civil facilities. A similar effort by another state could, similarly, make use of materials and equipment that do not achieve the quality or purity specifications included in the NSG Trigger List and therefore would be very difficult for the international community to control in any meaningful way. Trade in these relatively common industrial materials, which are in widespread non-nuclear use internationally and which have only a marginal utility to a weapons program, cannot really be comprehensively addressed by a system of international controls. The DPRK is known to have traded with the Khan network. While there is ample evidence that it was a customer of the network, there is also reasonable suspicion that it was also a supplier to the network. Similarly there is suspicion that the DPRK’s involvement in the illicit provision of an undeclared nuclear reactor to Syria was only one element of a wider nuclear export program. There is little publicly available evidence on the trade in nuclear relevant materials, equipment and technology by the DPRK with other states. The DPRK is secretive and the trade is conducted using covert means and makes use of denial and deception strategies to conceal its purpose. E. TRANSHIPMENT International container cargo trade aims to maximise the efficiency of the transfer of cargoes from origin to destination. In order to minimise cost and time it is common for containerised cargoes to be transhipped at major transport hubs to ensure that cargoes are delivered to their destinations with minimal delay. The states which have become transhipment hubs have made substantial capital investment in the infrastructure of trade. The states concerned have

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worked hard to establish reputations as safe, fast and reliable facilitators of legitimate international trade. The transhipment of NSG items (either trigger list or dual use) is an area of major proliferation concern. Controls on transhipped goods can be difficult to enforce, as trade volumes in busy ports amount to many billions of dollars worth of goods per year. The “free trade zones” that have been established by some transhipping states also complicate control issues. Addressing transhipping issues is particularly difficult. Introducing complications and delays to trade is not something that such major transhipping states would be willing to take on lightly. Malta and Cyprus were encouraged to join the NSG due to their roles as major transhipment points within the Mediterranean. As NSG members, Malta and Cyrus are expected to enforce NSG controls on material equipment and technology transhipped in their facilities. Other states with major transhipping roles (such as Singapore and Malaysia) could also make a significant contribution to furthering non-proliferation in they could enforce similar controls on cargoes using their transhipment facilities.