How safeguards affect Chinese enterprises in growing nuclear trade

By Wang Jihong and Yang Chenxi, Zhong Lun Law Firm
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China’s imports and exports for nuclear power, nuclear facilities and other related items are growing by the day. For companies or other organisations wishing to engage in such trade, it is important to understand the framework of nuclear safeguards that they will encounter.

王霁虹, Wang Jihong, Partner, Zhonglun Law Firm
Wang Jihong
Partner
Zhong Lun Law Firm

International system

Nuclear safeguards are an international verification mechanism with the fundamental purpose of preventing the proliferation of atomic weapons. The global community has agreed a number of conventions, such as the Treaty on the Non-Proliferation of Nuclear Weapons, and set up dedicated organisations, including the International Atomic Energy Agency (IAEA), the Zangger Committee, and the Nuclear Suppliers Group (NSG), which together constitute the international nuclear non-proliferation regime.

Under the nuclear safeguards system, sovereign states make international legal commitments to accept inspection and verification in accordance with their relevant legislation and multilateral and bilateral agreements, submitting all or part of their nuclear materials and activities to inspection and verification by the authorised agencies.

International export controls are one of the key items subject to inspection and verification. International organisations and countries use lists to determine the scope of control, banning or restriction of the export of items on the list. They exercise control mainly through export registration, export licensing, end-user and end-use certification, among other measures.

The nuclear export control list accepted internationally originates from the NSG. Its specific contents include the Guidelines for Nuclear Transfers, the Trigger List and the Dual-Use List. Each NSG participant incorporates the Guidelines for Nuclear Transfers and its two control lists into national law on a voluntary basis, implements them in accordance with the law, and undertakes to comply with strict supply conditions.

杨晨曦, Yang Chenxi, Associate, Zhong Lun Law Firm
Yang Chenxi
Associate
Zhong Lun Law Firm

China’s safeguards system

As a nuclear power, China has developed a complete nuclear industry chain and established a nuclear safeguards system. At the international level, China has entered into the Agreement Between the People’s Republic of China and the IAEA for the Application of Safeguards in China and its additional protocol, and the Treaty on the Non-Proliferation of Nuclear Weapons, and has joined such international organisations as the Zangger Committee and the NSG.

At the domestic level, the central government has issued and amended: the Regulations on Nuclear Export Control; the Regulations on Export Controls for Nuclear Dual-Use Items and Related Technologies; the Provisions for the Oversight of Nuclear Imports and Exports and Foreign Nuclear Co-operation Safeguards; the Administrative Measures of the People’s Republic of China for the Registration of the Export of, and the Dealing in, Sensitive Items and Technologies; the Administrative Measures for Import and Export Licences for Dual-Use Items and Technologies; and the Administrative Measures for Governmental Commitments on Nuclear Imports, etc., bringing it fully in line with international practice in terms of nuclear export controls.

Matters of note and obligations

When drafting a relevant export contract, a Chinese enterprise is required to specify the nuclear safeguard obligations of the export recipient and ensure that the contract satisfies the requirements of China’s nuclear regulators.

First, an export contract is required to have dedicated nuclear safeguard clauses that require the export recipient to undertake that all of the materials, equipment, technology, fuel and other nuclear items and technologies supplied will be: used solely for peaceful, non-explosive and non-military purposes; used solely by the end-user specified in the contract; covered by a valid comprehensive safeguards agreement or voluntary safeguards agreement between the government of the recipient and the IAEA; given physical protections at a level not lower than recommended by the IAEA; and will not be transferred to any third party without the consent of the central government.

Further, the contract must require that uranium enrichment facilities, technologies or any facilities based on such technologies supplied by China will not be used to produce uranium enriched above 20%.

A recipient of exported nuclear dual-use items and related technologies is required to undertake that they: will not be used for nuclear explosive purposes, or any purposes other than the stated end-use; will not be used in nuclear fuel cycle activities not subject to safeguards monitoring by the IAEA; and will not be transferred to any third party other than the designated end-user.

In addition, before the contract can take effect, the recipient must provide a qualified end-user and end-use certificate issued by the government of the recipient.

The export agreement must also expressly specify that if the recipient breaches a nuclear safeguard clause, the Chinese party shall have the right to terminate the contract. The clause must also state that the recipient shall immediately stop using and return the relevant materials, equipment, fuel and other nuclear items and technologies, and indemnify the Chinese party for all losses incurred by it as a result, as well as bearing any liability resulting from the breach of contract.

With nuclear-related imports, a Chinese enterprise is required to submit the import contract for review by the State Administration of Science, Technology and Industry for National Defence before execution.

The Chinese importer should therefore ensure that the contract’s nuclear safeguards clauses satisfy the obligations of the exporting country, comply with China’s obligations under both international and domestic laws and regulations, confirm that the relevant provisions meet the state administration’s review requirements, promptly report any safeguards-monitoring issues to the administration, and strictly fulfil its relevant nuclear safeguard obligations.

If required by the supplier country’s government, the enterprise may apply to the administration for a written commitment document in accordance with the Administrative Measures for Government Commitments on Nuclear Imports.

Wang Jihong is a partner and Yang Chenxi is an associate at Zhong Lun Law Firm

Zhong Lun Law Firm

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wangjihong@zhonglun.com

yangchenxi@zhonglun.com

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