```

[Senate Report 110-151]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 349
110th Congress                                                   Report
                                 SENATE
 1st Session                                                    110-151

======================================================================

 
               NUCLEAR SAFEGUARDS AND SUPPLY ACT OF 2007

                                _______
                                

               September 11, 2007.--Ordered to be printed

          Mr. Biden, from the Committee on Foreign Relations,
                        submitted the following

                                 REPORT

                         [To accompany S. 1138]

    The Committee on Foreign Relations, having had under 
consideration a bill (S. 1138) to enhance nuclear safeguards 
and to provide assurances of nuclear fuel supply to countries 
that forgo certain fuel cycle activities, reports favorably 
thereon and recommends that the bill do pass.

                                CONTENTS

                                                                   Page

  I. Purpose and Summary..............................................1
 II. Committee Action.................................................6
III. Summary of Legislation...........................................6
 IV. Cost Estimate...................................................15
  V. Evaluation of Regulatory Impact.................................17
 VI. Changes in Existing Law.........................................17
VII. Annex: Additional Documents and Information.....................17

                         I. PURPOSE AND SUMMARY

    The Nuclear Safeguards and Supply Act of 2007 provides 
increased support to the International Atomic Energy Agency's 
(IAEA) safeguards system by addressing a funding shortfall in 
the present safeguards system. The bill also makes it the 
policy of the United States to discourage the development of 
enrichment and reprocessing capabilities in additional 
countries, encourage the creation of bilateral and multilateral 
assurances of nuclear fuel supply, and ensure that all supply 
mechanisms operate in strict accordance with the IAEA 
safeguards system and do not result in any additional unmet 
verification burdens for the system. The bill would also 
authorize the President to negotiate, on both a bilateral and 
multilateral level, mechanisms to assure nations that forgo 
national nuclear fuel-cycle capabilities a supply of nuclear 
fuel for peaceful purposes. S. 1138 also ties the supply of 
nuclear fuel and an expansion of nuclear power to the ability 
of the IAEA to assure, through safeguards implementation, the 
absence of undeclared nuclear materials and activities 
involving them in states receiving nuclear fuel under such 
mechanisms.
    Significant international attention has focused in recent 
years on the problem of the increasing number of states seeking 
access to technical capabilities in the enrichment of uranium 
and the reprocessing of spent nuclear fuel. At the same time, 
increasing interest in nuclear power has led many countries to 
make new policy determinations that favor the use of nuclear 
power. A decision by any country to enter into the nuclear 
power field requires a clear understanding of the nuclear fuel 
cycle facilities for the storage or production of fuel to run 
reactors, the numbers and types of reactors that will be built, 
and the disposition of spent nuclear fuel and waste that will 
result from the operation of reactors. New nuclear facilities, 
be they production or utilization facilities, carry with them 
safeguards burdens. A substantial increase in the use of 
nuclear power throughout the world could result in many new 
facilities with nuclear material in new states over the coming 
decades. Such a situation poses inherent risks for U.S. 
national security and global peace and stability if the 
international community does not plan for an expansion of 
nuclear power in a manner that ensures that the nuclear 
nonproliferation system--which depends heavily on the IAEA's 
safeguards system--has the resources and technology available 
to it to cope with an expansion of civilian nuclear power. The 
committee believes that support for IAEA safeguards is thus an 
urgent priority.
    Most projections regarding the expansion of nuclear power 
show some increase in the number of facilities and the amount 
of power generated, but are uncertain regarding the rate and 
scope of the rise in the use of nuclear power for electricity 
generation and the pace in construction of new utilization 
facilities or reactors. There are currently 435 commercial 
nuclear power plants operating in 30 countries around the 
globe, with a combined capacity of 370 GW(e). These plants 
supply 16 percent of the world's electricity.\1\ A number of 
states, including China, India, Pakistan, Japan, Russia, the 
Republic of Korea, and the United States, have stated their 
intention to expand their nuclear power sectors. In the past 
year, there have been more than 25 announcements of license 
applications by the U.S. Nuclear Regulatory Commission (NRC) 
and various U.S. nuclear power entities for planned activities 
in the United States. Canada has recently undertaken 
preparatory activities for additional nuclear power plants. The 
United Kingdom has concluded in a major government review that 
nuclear power would form a key part of that country's energy 
strategy over the next century. The governments of Egypt, 
Nigeria, Indonesia, Turkey, and Belarus have all announced 
their intention to build their first nuclear reactors. The 
February 2005 Report of the IAEA Experts Group on Multilateral 
Approaches to the Nuclear Fuel Cycle found that ``In light of 
existing, new and reawakened interest in many regions of the 
world, the prospect of new nuclear power stations on a large 
scale is therefore real. A greater number of States will 
consider developing their own fuel cycle facilities and nuclear 
know-how, and will seek assurances of supply in materials, 
services and technologies.''
---------------------------------------------------------------------------
    \1\See http://www.world-nuclear.org/info/inf01.htm.
---------------------------------------------------------------------------
    There has also been an expansion of the capacity to make 
nuclear fuel within the last several years. In 2006-2007, 
Brazil completed work on its uranium enrichment facility at 
Resende. In the United States construction is underway on the 
National Enrichment Facility, and France also began building a 
new enrichment facility, to be called Georges Besse II.
    The United States has for many years maintained a policy 
that it will not transfer enrichment and reprocessing 
technology to any state. President Bush has stated that his 
administration's policy is to prevent the further spread of 
such technology to new states. At the same time, the rising 
interest in nuclear power has challenged the international 
community to find ways to assure states contemplating nuclear 
power that they do not need to create national fuel cycles, 
which necessitate enrichment and reprocessing, to enjoy the 
benefits of nuclear power.
    In 2005, Senator Lugar, then chairman of the committee, 
formed a Policy Advisory Group (PAG) on nuclear 
nonproliferation, which made and forwarded certain 
recommendations to President George W. Bush regarding the 
future of the nuclear fuel cycle and the dangers of 
proliferation. Co-chaired by Ronald F. Lehman II, formerly 
Administrator of the U.S. Arms Control and Disarmament Agency, 
and Ashton B. Carter, formerly Assistant Secretary of Defense 
for International Security Policy, the group included notable 
experts in the fields of nuclear nonproliferation, verification 
and arms control.\2\ The PAG focused on the future of the 
Nuclear Non-Proliferation Treaty (NPT) and the larger 
nonproliferation system it supports.
---------------------------------------------------------------------------
    \2\See Appendix to this Report.
---------------------------------------------------------------------------
    The PAG found that the existing safeguards regime has 
failed to keep pace with the increase in the global 
availability of nuclear weapons technology, especially the 
technology and equipment for uranium enrichment and spent 
nuclear reactor fuel reprocessing. While the number of 
recognized nuclear-weapon states has not dramatically increased 
over the years, the dangers of proliferation have become more 
apparent, as demonstrated by the A.Q. Khan network and the 
Iranian, North Korean and Libyan examples.
    The PAG found that the construction of new facilities for 
the enrichment of uranium and reprocessing of spent nuclear 
fuel, even for ostensibly peaceful purposes, poses an 
unacceptable long-term risk to the national security of the 
United States. The enrichment technology intended to produce 
fuel for nuclear power reactors can also be used to create 
material for a nuclear weapon, and the plutonium that is 
produced from reprocessing spent nuclear fuel is weapons-
usable. Safeguards, even if applied as envisioned by the IAEA's 
Model Additional Protocol to country safeguards agreements 
(hereinafter, ``additional protocol''), cannot solve the 
fundamental problems inherent in detecting enrichment 
facilities, which can be easily hidden. The spread of 
enrichment and reprocessing capabilities dangerously increases 
the possibility that more nations could develop their own 
nuclear weapons or that terrorists might obtain fissile or 
radiological materials for a dirty bomb. Given such threats, 
the PAG called on the United States to lead an international 
effort to halt the expansion of enrichment and reprocessing to 
new countries.
    The PAG found that the use of nuclear power is likely to 
increase, both in developed countries and, in particular, in 
developing countries. Importantly, however, the PAG concluded 
that expansion of nuclear power does not require--either 
technically or economically--the construction of new enrichment 
and reprocessing facilities in countries that do not currently 
have them. ``Under most scenarios,'' the PAG found, ``excess 
capacity already exists and will continue to exist for many 
years.''\3\
---------------------------------------------------------------------------
    \3\See Appendix.
---------------------------------------------------------------------------
    The increasing international focus on nuclear power and 
consequent concerns about nonproliferation have resulted in the 
world's leading nuclear states offering a variety of proposals 
that not only favor the expansion of nuclear power, but also 
draw attention to the dangers of proliferation. In 2006, the 
United States announced a major initiative called the ``Global 
Nuclear Energy Partnership'' (GNEP). According to the 
administration, GNEP would seek to increase energy security and 
promote nonproliferation through the expanded use of 
proliferation-resistant nuclear energy facilities to meet 
growing electricity demand. The key elements of GNEP would 
include expanding domestic use of nuclear power; demonstration 
of proliferation-resistant actinide recycling of irradiated 
nuclear fuel; the minimization of nuclear waste; the 
development of advanced burner reactors; the establishment of 
reliable global fuel services; the demonstration of small- and 
medium-scale, proliferation-resistant reactors; and the 
revitalization of programs for advanced nuclear safeguards.
    With regard to safeguards, GNEP may include such enhanced 
activities (which remain largely undefined) as:

   Incorporation of nuclear safeguards technology into 
        designs for recycle facilities, advanced fast reactors, 
        and associated nuclear materials storage and 
        transportation, making them proliferation resistant.

   Development of high-reliability, remote, and 
        unattended monitoring technologies; advanced 
        containment and surveillance; smart safeguards 
        information collection, management, and analysis 
        systems; nuclear facility use-control systems; and next 
        generation nondestructive analysis and process 
        monitoring sensors.

   Research and development of advanced material 
        tracking methodologies, process control technologies, 
        and plant engineering.

   Remote sensing, environmental sampling and forensic 
        verifica-tion methods.

   International facilities for conducting testing and 
        demonstration.

   Continued support for global best practices for 
        security and accounting of nuclear materials.\4\
---------------------------------------------------------------------------
    \4\See http://www.gnep.energy.gov/gnepNuclearSafeguards.html.
---------------------------------------------------------------------------
    In January 2006, President Vladimir Putin of Russia also 
proposed creation of ``a system of international centres, 
providing nuclear fuel-cycle services, including enrichment, on 
a non-discriminatory basis and under the control of the 
IAEA.''\5\ In addition to the U.S. and Russian proposals, a 
number of other ideas have been placed before the IAEA by major 
nuclear states, which were considered at a Special Event on a 
New Framework for the Utilization of Nuclear Energy in the 21st 
century during the 50th IAEA General Conference.\6\
---------------------------------------------------------------------------
    \5\``Paper Profiles Russian-Kazakh-Uzbek Uranium Enrichment Deal,'' 
Text of a Report from the Kommersant Newspaper, January 29, 2006, BBC 
Monitoring Former Soviet Union, available on Nexis.com.
    \6\See http://www-pub.iaea.org/MTCD/Meetings/
Announcements.asp?ConfID=147.
---------------------------------------------------------------------------
    Despite the wide expectation of increased nuclear facility 
construction, there has been little increase in financial 
support to the IAEA's Department of Safeguards to ensure that 
it can meet both existing and future safeguards demands. The 
committee notes that all of the work conducted by the IAEA to 
implement existing safeguards is carried out under a budget 
that is not sufficient to meet the growing demands for 
safeguards. With activities likely to resume in North Korea, as 
well as verification of North Korean compliance with agreements 
reached in the Six Party Talks, ongoing activities in Iran, 
increasing activities in many European states, a likely new and 
costly set of safeguards requirements that will result from 
renewed international nuclear cooperation with India, expanded 
reprocessing activities in Japan, and the welcome 
implementation of additional protocols by more states, along 
with stresses the IAEA is already experiencing in its 
verification program, particularly as more environmental 
samples come to it for analysis under additional protocols, 
funding for safeguards now demands immediate attention. The 
IAEA must maintain an ability to implement unprogrammed 
safeguards and verification activities when issues arise, but 
maintaining routine safeguards grows difficult in times when 
many of its resources are already engaged. The United States 
and all IAEA member states must prevent a scenario in which the 
IAEA is forced to reduce--or cease altogether--safeguards 
efforts in key states because of budget shortfalls.
    Historically, certain policies have adversely affected the 
ability of the IAEA to meet growing safeguards challenges. In 
1985, the Geneva Group (the 14 largest contributors to the 
United Nations) imposed a policy of ``zero real growth'' on the 
IAEA's budget, save for staff salaries. This policy was 
reversed by the IAEA's Board of Governors in July 2003. The 
committee strongly supported the decision to end the zero real 
growth policy, a decision consistent with previously-enacted 
legislation.\7\ Nevertheless, overall budgetary support remains 
insufficient to meet existing safeguards needs, much less the 
dramatically expanded requirements that may present themselves 
in the future. Moreover, additional constraints on the IAEA's 
verification effort, such as those on the amount of time staff 
may work at the IAEA's Safeguards Analytical Laboratory, pose 
other challenges. In this regard, certain provisions of S. 1138 
again call to attention the need for reform.
---------------------------------------------------------------------------
    \7\See section 1305 of P.L. 107-228, The Foreign Relations 
Authorization Act, Fiscal Year 2003.
---------------------------------------------------------------------------
    S. 1138 deals with the realities of expanding nuclear power 
given the existing demands on IAEA safeguards. Much of the work 
that will create a more proliferation-resistant, nuclear-
powered future can be done today, but this requires more than 
technical progress in the design of new nuclear facilities. 
Such technologies are many years away from being commercially 
available. What are needed now are sustained U.S. leadership 
and increased financial support for IAEA safeguards. The 
committee finds that S. 1138 will positively contribute to and 
enhance existing safeguards and will enhance nuclear fuel 
supply mechanisms that take into account important 
nonproliferation criteria, and to these ends has reported 
favorably this legislation.

                          II. COMMITTEE ACTION

    S. 1138 was introduced by Senators Lugar and Bayh on April 
18, 2007, and referred to the committee on the same day.
    At a business meeting on June 27, 2007, by a voice vote, 
the committee ordered the bill reported favorably to the 
Senate.

                      III. SUMMARY OF LEGISLATION

    The Nuclear Safeguards and Supply Act of 2007 consists of 
two titles that augment existing U.S. activities in support of 
IAEA safeguards and provide authority to the President to 
negotiate agreements or create mechanisms for the supply of 
nuclear fuel to countries forgoing enrichment and reprocessing 
and meeting certain criteria. Importantly, the committee notes 
that neither title provides authorities additional to those 
available to the executive branch for nuclear cooperation, 
which remains governed by existing statutes and regulations.
    Sections 1 and 2 set forth the short title and provide a 
table of contents. Section 3 defines ``appropriate 
congressional committees'' as the Committee on Foreign 
Relations in the Senate and the Committee on Foreign Affairs in 
the House of Representatives.
    Title I provides a set of findings, stipulates both 
existing and new policies of the United States with respect to 
assurances of nuclear fuel supply, increases budgetary support 
for the IAEA's Safeguards Analytical Laboratory, and calls for 
an enhanced safeguards technology development program. Title II 
provides Presidential authority, consistent with existing law, 
for negotiation of bilateral and multilateral assurances of 
nuclear fuel supply to states meeting certain criteria, 
requires a report on the establishment of an International 
Nuclear Fuel Authority, and contains a sense of the Senate 
provision on IAEA activities for nuclear fuel supply.

TITLE I--NUCLEAR SAFEGUARDS AND NUCLEAR FUEL SUPPLY

    Sections 101 (1)-(19) provide important findings. In the 
past two years, major studies, both in the United States and 
under the auspices of the IAEA, have highlighted critical 
questions confronting the world as it contemplates the nuclear 
future and begins to examine proposals for nuclear supply that 
would use nonproliferation criteria as conditions of supply. 
Particularly significant was the 2005 Report of the IAEA 
Experts Group on Multilateral Approaches to the Nuclear Fuel 
Cycle, which was chaired by the former Deputy Director General 
of the IAEA for Safeguards, Dr. Bruno Pellaud. The Experts 
Group noted:

          Two primary deciding factors dominate all assessments 
        of multilateral nuclear approaches, namely ``Assurance 
        of non-proliferation'' and ``Assurance of supply and 
        services''. Both are recognised overall objectives for 
        governments and for the NPT community. In practice, 
        each of these two objectives can seldom be achieved 
        fully on its own. History has shown that it is even 
        more difficult to find an optimum arrangement that will 
        satisfy both objectives at the same time.\8\
---------------------------------------------------------------------------
    \8\See http://www.iaea.org/Publications/Documents/Infcircs/2005/
infcirc640.pdf, hereinafter, ``Pellaud Report.''

    This statement highlights the difficulty that will confront 
the international community as it works to create international 
fuel supply mechanisms. The committee notes that many supply-
side assurance efforts have been initiated in the past. 
Importantly, Congress proposed in the Nuclear Nonproliferation 
Act (NNPA) of 1978 (22 U.S.C. 3201 et seq.) that the President 
create and submit to Congress such mechanisms as ``initial fuel 
assurances, including creation of an interim stockpile'' of low 
enriched uranium fuel ``to be available for transfer pursuant 
to a sales arrangement to nations which adhere to strict 
policies designed to prevent proliferation when and if 
necessary to ensure continuity of nuclear fuel supply to such 
nations.''\9\ Congress also mandated that the provision of this 
fuel be equivalent to generation of up to ``100,000 MW(e) years 
of power from light water reactors.''\10\ Yet serious 
negotiations were never pursued for such a proposal by the 
executive branch. Over the next 20 years, the IAEA and other 
expert groups also initiated studies on fuel assurances and 
nonproliferation. These included the IAEA study on Regional 
Nuclear Fuel Cycle Centers, the International Nuclear Fuel 
Cycle Evaluation, the Expert Group on International Plutonium 
Storage, and the IAEA Committee on Assurances of Supply. No 
countries substantially changed their nuclear policies as a 
result of these efforts. Consensus was difficult to achieve 
because of the declining interest in (and in some cases 
opposition to) nuclear power and a failure to agree on what 
criteria would govern supply assurances.
---------------------------------------------------------------------------
    \9\22 U.S.C. 3223(b).
    \10\Ibid.
---------------------------------------------------------------------------
    With regard to nonproliferation factors that should 
influence the evaluation of any proposals for assurance of 
supply, the Pellaud report noted:

          The non-proliferation value of a multilateral 
        arrangement is measured by the various proliferation 
        risks associated with a nuclear facility, whether 
        national or multilateral. These risks include the 
        diversion of materials from [a multilateral nuclear 
        approach or MNA] (reduced through the presence of a 
        multinational team), the theft of fissile materials, 
        the diffusion of proscribed or sensitive technologies 
        from MNAs to unauthorised entities, the development of 
        clandestine parallel programmes and the breakout 
        scenario. The latter refers to the case of the host 
        country ``breaking out,'' for example, by expelling 
        multinational staff, withdrawing from the NPT (and 
        thereby terminating its safeguards agreement), and 
        operating the multilateral facility without 
        international control.\11\
---------------------------------------------------------------------------
    \11\Pellaud Report.

    The committee strongly concurs with this assessment, and 
notes that proposals for the creation of supply mechanisms must 
directly address these issues at the point of their creation, 
rather than offer only vague understandings that may result in 
---------------------------------------------------------------------------
later difficulties. Thus, section 101(16) concludes:

          Any proposals for the creation of bilateral or 
        multilateral assurances of supply mechanisms must take 
        into account, and be achieved in a manner that 
        minimizes, the risk of nuclear proliferation or 
        regional arms races and maximizes adherence to 
        international nonproliferation regimes, including, in 
        particular, the Guidelines of the Nuclear Suppliers 
        Group (NSG), and the IAEA Additional Protocol.

    There appears to be wide international support for limiting 
enrichment and reprocessing, based on supply incentives. For 
instance, the 2004 Report of the United Nations Secretary-
General's High-Level Panel on Threats, Challenges and Change 
found (and section 101(6) notes) that ``creating incentives for 
countries to forego the development of domestic uranium 
enrichment and reprocessing facilities is essential, and that 
such suggestions, if implemented swiftly and firmly, offer a 
real chance to reduce the risk of a nuclear attack, whether by 
states or non-state actors, and that such proposals should be 
put into effect without delay.''\12\
---------------------------------------------------------------------------
    \12\See http://www.un.org/secureworld/.

    The committee strongly believes that any mechanism 
developed for the provision of nuclear fuel should be country-
neutral, should be based on solid nonproliferation criteria, 
and should, to the maximum degree possible, reinforce the 
existing safeguards system and prevent additional proliferation 
by limiting the spread of enrichment and reprocessing. Even if 
a recipient state were to forgo enrichment and reprocessing, 
the supply of nuclear fuel to that state would require 
effective safeguards measures to be in place. Should an 
international fuel storage facility be located in a nuclear-
weapon state, it would be preferable from a nonproliferation 
standpoint for comprehensive safeguards to be applied to that 
facility, so as to maintain strict accounting for all fuel set 
aside for non-nuclear weapons states.
    Section 102(a) continues U.S. policies already enacted in 
the NNPA, namely that it is the policy of the United States:

          (1) to create mechanisms to provide adequate supplies 
        of nuclear fuel consistent with the provisions of the 
        Nuclear Non-Proliferation Act of 1978, in particular 
        title I of such Act (22 U.S.C. 3221 et seq.);
          (2) to strengthen the IAEA safeguards system 
        consistent with the provisions of the Nuclear Non-
        Proliferation Act of 1978, in particular title II of 
        such Act (22 U.S.C. 3241 et seq.); and
          (3) to cooperate with other nations, international 
        institutions, and private organizations to assist in 
        the development of non-nuclear energy resources under 
        title V of the Nuclear Non-Proliferation Act of 1978 
        (22 U.S.C. 3261 et seq.).

    The committee notes that it has long been U.S. policy, as 
embodied in the NNPA, to create assurances of nuclear supply, 
to strengthen the IAEA safeguards system, and to work to 
provide nations seeking new sources of electricity with non-
nuclear options. Much work is already done under the U.S. 
Program of Technical Assistance to IAEA Safeguards (POTAS).
    Section 102(b) would enact into law the policy announced in 
President Bush's speech at the National Defense University on 
February 11, 2004:

          The world's leading nuclear exporters should ensure 
        that states have reliable access at reasonable cost to 
        fuel for civilian reactors, so long as those states 
        renounce enrichment and reprocessing. Enrichment and 
        reprocessing are not necessary for nations seeking to 
        harness nuclear energy for peaceful purposes.\13\
---------------------------------------------------------------------------
    \13\See http://www.whitehouse.gov/news/releases/2004/02/20040211-
4.html.

    Thus, section 102(b) makes it the policy of the United 
---------------------------------------------------------------------------
States

          [T]o discourage the development of enrichment and 
        reprocessing capabilities in additional countries, 
        encourage the creation of bilateral and multilateral 
        assurances of nuclear fuel supply, and ensure that all 
        supply mechanisms operate in strict accordance with the 
        IAEA safeguards system and do not result in any 
        additional unmet verification burdens for the system.

    Section 103(a) would authorize, in addition to the amount 
requested by the President for U.S. voluntary contributions to 
the IAEA for fiscal year 2008, $10 million for the 
refurbishment or possible replacement of the IAEA Safeguards 
Analytical Laboratory (SAL).
    Committee staff and, on one occasion, Senator Lugar, have 
visited SAL. Each time, staff was impressed with the level of 
professionalism and dedication of the laboratory staff but was 
troubled by the apparent state of the facility. Located in 
Seibersdorf, Austria, outside Vienna, the SAL provides 
analytical support to the IAEA Department of Safeguards by 
receiving samples of materials taken during inspections at key 
measurement points of the nuclear fuel cycle for destructive 
chemical and isotopic analysis. This complements physical 
inspections and measurements performed by IAEA inspectors in 
nuclear facilities. Such technical analysis capabilities help 
the IAEA to assure that nuclear material under IAEA safeguards 
is not diverted to military purposes and, at times, to locate 
undeclared nuclear material. When SAL is unable to perform 
certain types of analysis, or when increased verification of 
results is needed, SAL will often involve its Network of 
Analytical Laboratories (in other IAEA member states) to assist 
it in its work.
    During staff site visits, which occurred in February 2004 
and in October and November 2006, staff found that considerable 
investment is needed for the laboratory to meet future IAEA 
requirements. The SAL's workload is growing, laboratory 
infrastructure is aging, and IAEA requirements have become more 
demanding. While initial plans have been made for laboratory 
enhancement, there is no escaping the fact that, as more 
countries implement IAEA safeguards and additional protocols, 
many more nuclear samples are coming to the SAL for analysis.
    Because of the way the laboratory's responsibilities have 
grown over the years, the facilities are not optimal: 
facilities are dispersed throughout the Seibersdorf site, which 
presents a security problem; almost all of the laboratory space 
is rented; the nuclear chemistry lab is 31 years old and has 
outdated infrastructure; and overall, the facility lacks space 
to deal with demands of the future.
    The laboratory also has significant personnel issues that 
stem from rules governing U.N. agencies. The rules create 
problems for the SAL in finding and keeping experienced 
professional staff. As experienced technicians retire, the SAL 
has been unable to replace them with experienced staff, largely 
because the IAEA has been unwilling to provide long-term 
contracts to laboratory personnel.
    The committee finds that, while certain personnel policies 
may be required for most U.N. agencies, the tremendously 
complicated and technical work of IAEA safeguards verification 
represents an especially critical function since that work 
directly enhances international nuclear accountability and 
transparency through safeguards, which in turn allow nations to 
make decisions relating to their future peace and security. The 
IAEA and its Board of Governors should reevaluate staffing 
policies at the SAL, with an eye toward improving staff 
retention through more long-term contracts, increasing 
budgetary support, and ensuring the effective operation of the 
SAL well into the future. Current funding and equipment 
planning is not sufficient to meet these goals, and attention 
to these problems is an urgent matter.
    Significantly, previous years' State Department budget 
requests have noted that a goal of U.S. contributions to the 
IAEA was ``[s]trengthening quality control and sensitivity of 
analyses by the Safeguards Analytical Laboratory (SAL) and the 
Network of Analytical Laboratories, and reviewing needs for 
possible refurbishment or replacement of SAL.''\14\ Section 
103(b), therefore, requires the Secretary of State to submit a 
report to Congress not later than 180 days after the date of 
the enactment of this Act on the refurbishment or possible 
replacement of the SAL. In such a report, the committee expects 
the Secretary to examine equipment, personnel, and budgetary 
issues associated with the SAL, including estimates of the 
total costs of completely refurbishing the SAL or replacing it.
---------------------------------------------------------------------------
    \14\See http://www.state.gov/documents/organization/60647.pdf.
---------------------------------------------------------------------------
    Section 104 requires the Secretary of State, in cooperation 
with the Secretary of Energy and the Directors of the National 
Laboratories and in consultation with the Secretary of Defense 
and the Director of National Intelligence, to pursue a program 
to strengthen technical safeguards research and development; to 
increase resources, identify near-term technology goals, 
formulate a technology roadmap, and improve interagency 
coordination on safeguards technology; and to examine 
proliferation resistance in the design and development of all 
future nuclear energy systems.
    The committee notes that much of this work is already done 
under POTAS, but that significant research done by various non-
governmental organizations has called for greater emphasis in 
this area. In particular, the May 2005 Report of the Nuclear 
Energy Study Group of the American Physical Society Panel on 
Public Affairs, titled ``Nuclear Power and Proliferation 
Resistance: Securing Benefits, Limiting Risks,'' contained 
important recommendations for future safeguards work.\15\ The 
report noted:
---------------------------------------------------------------------------
    \15\See http://www.aps.org/policy/reports/popa-reports/
proliferation-resistance/upload/proliferation.pdf.

          The current Safeguards program largely implements or 
        transfers technologies that are the result of [research 
        and development] carried out 10-20 years ago. 
        Revitalizing Safeguards [research and development] is 
        the most significant technical investment that can 
        enhance the proliferation resistance of nuclear power 
        within the next five years.\16\
---------------------------------------------------------------------------
    \16\Ibid.
---------------------------------------------------------------------------

TITLE II--NUCLEAR FUEL SUPPLY

    Section 201(a) authorizes the President to create, 
consistent with title I of the NNPA and other applicable 
provisions of law, bilateral and multilateral mechanisms to 
provide a reliable supply of nuclear fuel to those countries 
and groups of countries that adhere to policies designed to 
prevent the proliferation of nuclear weapons and that decide to 
forgo a national uranium enrichment program and spent nuclear 
fuel reprocessing facilities. The committee recognizes that 
forgoing enrichment and reprocessing strikes many countries as 
restricting rights they understand themselves to have acquired 
by ratifying or acceding to the NPT. Section 201(a) does not 
require countries to foreswear any rights. Rather, they must 
refrain from investing in sensitive fuel cycle facilities. The 
committee believes that there would be little value added to 
the existing nonproliferation regime by any assurance of 
nuclear fuel supply that did not rest on at least this basic 
assurance of nonproliferation. Notwithstanding such assurances, 
moreover, as a general matter, the committee believes that 
enrichment and reprocessing transfers should be denied to 
states that do not already operate full-scale enrichment and 
reprocessing facilities.
    Section 201(a) would, again, provide a statutory embodiment 
of the President's policy regarding the supply of nuclear fuel 
and the proliferation of enrichment and reprocessing technology 
announced on February 11, 2004. It is also written so as to 
require consistency with the NNPA. Many proposals for the 
expansion of nuclear power have included substantial programs 
for international cooperation on reprocessing. While the 
nuclear fuel cycle envisioned by some more than 50 years ago 
included substantial re-use of plutonium in fast neutron 
reactors, many became concerned regarding the inherent 
proliferation risks posed by the use of such reactors and 
reprocessing. Today, some proposals contemplate expanded use of 
long-lived, separated actinides, including plutonium, in new, 
more sophisticated fast neutron reactors. Such reactors appear 
to be many years from being commercially viable. Several 
important studies, including a recent study commissioned by the 
Keystone Center, have also noted:

          No commercial reprocessing of nuclear fuel is 
        currently undertaken in the U.S. ... while reprocessing 
        of commercial spent fuel has been pursued for several 
        decades in Europe, overall fuel cycle economics have 
        not supported a change in the U.S. from a ``once-
        through'' fuel cycle. Furthermore, the long-term 
        availability of uranium at reasonable cost suggests 
        that reprocessing of spent fuel will not be cost-
        effective in the foreseeable future.\17\
---------------------------------------------------------------------------
    \17\See http://www.keystone.org/spp/documents/FinalReport--NJFF6--
12--2007(1).pdf.

    Given this assessment of the domestic nuclear picture, and 
recalling the conclusions of the 2005 PAG on nonproliferation, 
it is unclear when reprocessing technologies would be prudent 
to advocate as a part of assured fuel supply to certain states. 
Given the current supply of natural uranium, the undemonstrated 
nature of certain new technologies, and uncertainties regarding 
the proliferation resistance of new fast neutron reactor 
designs, the committee believes it prudent at this time to 
offer instead light water thermal reactors, and a supply of 
low-enriched uranium for them.
    The committee notes that the administration has already 
taken steps toward just such a mechanism, with an announcement 
by the National Nuclear Security Administration (NNSA) that it 
has awarded a contract to Wesdyne International and Nuclear 
Fuel Services, Inc., to down-blend 17.4 metric tons of U.S. 
highly enriched uranium and store the resulting low-enriched 
uranium for a reliable fuel supply program.\18\ The material 
would be converted, by 2010, to a stockpile of some 290 metric 
tons of low-enriched uranium fuel. According to the NNSA, 
``[t]he fuel will be available for use in civilian reactors by 
nations in good standing with the International Atomic Energy 
Agency (IAEA) that have good nonproliferation credentials and 
are not pursuing uranium enrichment and reprocessing 
technologies.''\19\ This proposal was first announced by 
Secretary of Energy Samuel Bodman at the 49th General 
Conference of the IAEA in 2005, when he stated that ``the U.S. 
Department of Energy will reserve up to 17 metric tons of 
highly enriched uranium for an IAEA verifiable assured supply 
arrangement.''\20\
---------------------------------------------------------------------------
    \18\See http://www.nnsa.doe.gov/docs/newsreleases/2007/PR--2007-06-
29--NA-07-26.htm.
    \19\Ibid.
    \20\See http://www.energy.gov/news/1948.htm.
---------------------------------------------------------------------------
    The committee notes the importance of such progress. S. 
1138 envisions such initiatives as a part of assurance of 
supply mechanisms, instead of simply authorizing additional 
money to the IAEA to achieve such purposes. While money for an 
IAEA-administered nuclear fuel bank may well be needed, the 
provision of materials, particularly down-blended former 
weapons materials, also supports a fuel assurance policy and 
demonstrates U.S. nonproliferation leadership by permanently 
removing such materials from our weapons program.
    Section 201(b) provides a set of factors that the President 
shall take into account when creating mechanisms for fuel 
supply under this title. Section 201(b) is intended to be a 
partial, not exhaustive, list of relevant criteria that should 
inform decisions regarding to which nations nuclear supply 
should be extended. Importantly, this provision states that 
these factors shall be taken into account ``to the maximum 
extent practicable.'' To the extent that one or more factors 
included in this section prove impracticable, or that other 
factors should be taken into account given a particular 
country's circumstances, the provision is intended to permit 
flexibility.
    The committee notes that no aspect of the creation of 
multilateral or bilateral mechanisms assuring nuclear fuel 
supply will be more difficult than the criteria for access to 
that supply. Section 201(b) sets forth factors the President 
shall examine in addition to the basic criteria related to 
nonproliferation of nuclear weapons or fuel cycle facilities:

          (1) The economic rationale for a country or countries 
        pursuing nuclear power, including existing sources of 
        power for such country or countries.
          (2) Whether such country or countries are in 
        compliance with their obligations under applicable 
        safeguards agreements and additional protocols with the 
        IAEA.
          (3) Whether or not the development in such country or 
        countries of the complete nuclear fuel cycle would 
        impose new, costly IAEA safeguards measures that cannot 
        be supported by current IAEA safeguards implementation 
        in such country or countries, such that there is a 
        reasonable assurance that all nuclear materials in such 
        country or countries are for peaceful purposes and that 
        there are no undeclared nuclear materials or activities 
        in such country or countries.
          (4) An evaluation of the proliferation dangers of 
        such country or countries developing nuclear fuel cycle 
        facilities for the production and disposition of source 
        and special nuclear materials.
          (5) Whether or not the country or countries that 
        would be recipients of nuclear fuel or other assistance 
        provided by the United States are or have ever been 
        designated as state sponsors of terrorism pursuant to 
        section 620A of the Foreign Assistance Act of 1961 (22 
        U.S.C. 2371), section 40 of the Arms Export Control Act 
        (22 U.S.C. 2780), or section 6(j) of the Export 
        Administration Act (50 U.S.C. App. 2405(j)).
          (6) If done under a bilateral supply mechanism, 
        whether IAEA safeguards are being applied or will be 
        applied to any facility, site, or location where 
        international nuclear fuel supply activities are to be 
        carried out.
          (7) Whether, in the case of a multilateral supply 
        mechanism, procedures are in place to ensure that when 
        United States funds are used or when United States 
        nuclear materials are to be used, exported, or 
        reexported, all applicable provisions of United States 
        law are followed.
          (8) Whether the recipient country or countries of any 
        fuel provided under this Act are or will become a 
        party, prior to the commencement of any nuclear fuel 
        supply under this Act, to--
                  (A) the Nuclear Non-Proliferation Treaty;
                  (B) in the case of a non-nuclear-weapon State 
                Party to the Nuclear Non-Proliferation Treaty, 
                a comprehensive safeguards agreement that is in 
                force, pursuant to which the IAEA has the right 
                and obligation to ensure that safeguards are 
                applied, in accordance with the terms of the 
                agreement, on all source or special fissionable 
                material in all peaceful nuclear activities 
                within the territory of such country, under its 
                jurisdiction, or carried out under its control 
                anywhere, for the exclusive purpose of 
                verifying that such material is not diverted to 
                nuclear weapons or other nuclear explosive 
                devices;
                  (C) an additional protocol;
                  (D) the Convention on Nuclear Safety, done at 
                Vienna September 20, 1994, and entered into 
                force October 24, 1996;
                  (E) the Convention on Physical Protection of 
                Nuclear Materials, done at Vienna October 26, 
                1979, and entered into force February 8, 1987; 
                and
                  (F) the Convention on Supplementary 
                Compensation for Nuclear Damage, done at Vienna 
                September 12, 1997.
          (9) The extent to which the recipient country or 
        countries have or will have prior to the commencement 
        of any nuclear fuel supply under this Act effective and 
        enforceable export controls regarding nuclear and dual-
        use nuclear technology and other sensitive materials 
        comparable to those maintained by the United States.
          (10) The conformity of the safety and regulatory 
        regimes in the recipient country or countries regarding 
        the nuclear power sector with similar United States 
        laws and regulations.
          (11) The history of safety or environmental problems 
        associated with any nuclear site, facility, or location 
        in the recipient country or countries in the past, and 
        the potential for future safety or environmental 
        problems or issues in connection with the civilian 
        nuclear power development plan of the country or 
        countries.
          (12) Whether the recipient country or countries have 
        resident within them any persons or entities involved 
        in the illicit trafficking of nuclear weapons, nuclear 
        materials, or dual-use nuclear technology.
          (13) Whether the recipient country or countries have 
        or will have sufficiently open and transparent civilian 
        power markets such that United States firms may benefit 
        from any such bilateral or multilateral supply 
        mechanisms.

    The committee notes that one of these factors, section 
201(b)(7), requires an examination by the President of 
compliance with relevant U.S. laws when providing funds or 
materials for international fuel assurances. For example, 
United States law would appear to prohibit supply in cases 
where ultimate use of material is to be by a state sponsor of 
terrorism. Section 201(b)(5) would also provide that the 
President take into account whether state sponsors of terrorism 
would be involved in any assurance of supply. In view of the 
complexity presented by this question, the committee hopes the 
administration will initiate consultations with the committee 
regarding its own analysis of U.S. laws and regulations at the 
earliest possible time, so as to permit clearer understandings 
of the various problems that may present themselves.
    Section 201(c) provides a rule of construction, stipulating 
that nothing in this Act shall be construed to provide any 
authority with respect to bilateral cooperation with another 
country or countries or any international organization or 
organizations in atomic energy that is additional to the 
authority provided under the Atomic Energy Act of 1954 (42 
U.S.C. 2011 et seq.) and all other applicable laws and 
regulations in effect on the date of the enactment of this Act. 
This provision guards against an overbroad reading of the Act's 
terms to obviate restrictions in current law regarding nuclear 
cooperation with other nations.
    Section 202 requires a new report from the executive branch 
regarding the creation of an International Nuclear Fuel 
Authority or INFA, which Congress first required in section 
104(a)(1) of the NNPA (22 U.S.C. 3223(a)(1)). In addition to 
the factors that were reported many years ago, this section 
would call for an updated and expanded report that would take 
into account, under section 202(b), new elements:

          (1) United States laws and regulations that could be 
        affected by the establishment of an INFA.
          (2) What the cost to the United States Government 
        could be of establishing an INFA.
          (3) Potential locations for the INFA.
          (4) The potential for creating a fuel supply bank 
        under the control of the INFA.
          (5) Nuclear materials that should be placed within 
        the control of the INFA, including which nuclear 
        activities should be carried out by the INFA for the 
        production of nuclear fuel or for use as fuel.
          (6) Whether the INFA should provide nuclear fuel 
        services to recipient countries.
          (7) Whether a multilateral supply mechanism, such as 
        the INFA, is, in the judgment of the President, 
        superior to bilateral mechanism for nuclear fuel 
        supply.
          (8) How such an international organization should 
        operate to preserve freedom of markets in nuclear fuel 
        and avoid undue interference in the efficient operation 
        of the international nuclear fuel market.
          (9) The degree and extent to which such a 
        multilateral supply mechanism should be under the 
        control of, or a subordinate organization within, the 
        IAEA, including whether establishing such an INFA would 
        be superior or preferable to allowing the IAEA, 
        pursuant to Article IX of the Statute of the IAEA, to 
        become an international broker of nuclear fuel and 
        nuclear fuel services, including with respect to an 
        examination of the costs to IAEA Member States of 
        effectively carrying out clauses (1) through (4) of 
        paragraph (H) of such Article.
          (10) The likely receptivity of the major countries 
        involved in the supply of nuclear fuel and nuclear 
        services to the creation of a multilateral supply 
        mechanism such as the INFA or one under the IAEA.

    Section 203 provides a sense of the Senate on an IAEA-
administered fuel bank. Section 203(4) concludes that

                  [A] combination of public and private 
                efforts, including the provisions of law 
                previously enacted in the Nuclear Non-
                Proliferation Act of 1978 (22 U.S.C. 3201 et 
                seq.) and other applicable laws, initiatives 
                supported by the President, efforts provided 
                for by private groups, and the recommendations 
                of many relevant studies, such as those cited 
                in section 101, will be necessary to 
                effectively and flexibly manage the growth of 
                civilian nuclear power in a manner that does 
                not result in undue burdens on the IAEA 
                safeguards system.

                           IV. COST ESTIMATE

    In accordance with Rule XXVI, paragraph 11(a) of the 
Standing Rules of the Senate, the committee provides this 
estimate of the costs of this legislation prepared by the 
Congressional Budget Office.

                            United States Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 20, 2007.

Hon. Joseph R. Biden, Jr.,
Chairman, Committee on Foreign Relations,
U.S. Senate, Washington, DC.

    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1138, the Nuclear 
Safeguards and Supply Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sam 
Papenfuss.
          Sincerely,
                                           Peter R. Orszag.

                                ------                                

               Congressional Budget Office Cost Estimate

                                S. 1138

               Nuclear Safeguards and Supply Act of 2007

  AS ORDERED REPORTED BY THE SENATE COMMITTEE ON FOREIGN RELATIONS ON 
                             JUNE 27, 2007

    S. 1138 would authorize the appropriation of $10 million 
for a contribution to the International Atomic Energy Agency 
(IAEA) to refurbish or replace the IAEA Safeguards Analytical 
Laboratory. Additionally, the bill would authorize the 
Secretary of State to pursue a program to develop better 
safeguards for the civilian use of nuclear energy to prevent 
proliferation of nuclear weapons. The bill also would authorize 
the President to develop a process by which nuclear fuel could 
be provided to other countries in the event of a disruption in 
the market supply.
    Both the development of safeguards and of a reliable supply 
of nuclear fuel are already authorized under current law and 
would not have a significant budgetary effect, CBO estimates. 
Based on historical spending patterns for contributions to 
international organizations, CBO estimates that implementing S. 
1138 would cost $10 million in 2008 for increased contributions 
to IAEA, assuming appropriation of the authorized amount. 
Enacting the bill would not affect direct spending or receipts.
    S. 1138 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    On June 1, 2007, CBO transmitted an estimate for H.R. 885, 
the International Nuclear Fuel for Peace and Nonproliferation 
Act of 2007, as ordered reported by the House Committee on 
Foreign Affairs on May 23, 2007. The differences in the 
estimates reflect differences in the bills. In particular, H.R. 
885 would authorize the appropriation of $50 million for a 
contribution to the IAEA for an international nuclear fuel bank 
and would not authorize the appropriation of funds for the 
IAEA's laboratory.
    The CBO staff contact for this estimate is Sam Papenfuss. 
This estimate was approved by Peter H. Fontaine, Deputy 
Assistant Director for Budget Analysis.

                   V. EVALUATION OF REGULATORY IMPACT

    Pursuant to Rule XXVI, paragraph 11(b) of the Standing 
Rules of the Senate, the committee has determined that there is 
no regulatory impact as a result of this legislation.

                      VI. CHANGES IN EXISTING LAW

    In compliance with paragraph 12 of Rule XXVI of the 
Standing Rules of the Senate, the committee notes that no 
changes to existing law are made by this bill.

            VII ANNEX: ADDITIONAL DOCUMENTS AND INFORMATION

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                     Washington, DC, July 19, 2005.
Hon. George W. Bush,
President of the United States,
The White House, Washington, DC.
    Dear Mr. President; I share with you a great concern about 
the future of the Nuclear Non-Proliferation Treaty and the 
larger non-proliferation system it supports. Attached is an 
interim report I have received from the Policy Advisory Group 
(PAG), a panel of experts I convened to provide advice to me 
and the Senate Foreign Relations Committee on what Congress and 
the administration should do to strengthen the NPT system. The 
group has had a number of meetings, and their deliberations 
continue. However, they have already reached conclusions about 
one crucial aspect of the issue that I felt I should share with 
you now.
    The existing safeguards regime used by the International 
Atomic Energy Agency (IAEA) succeeded in forestalling nuclear 
weapons programs in the world's advanced industrial states, 
several of which were weighing the nuclear option 40 years ago. 
This regime has failed to keep pace, however, with the increase 
in the global availability of nuclear weapons technology, 
especially the technology and equipment for uranium enrichment 
and spent nuclear reactor fuel reprocessing to produce the 
fissile material for such weapons. Now the road to nuclear 
weapons can be traveled by determined countries with only a 
minimal industrial base. While the number of recognized 
nuclear-weapon states (NWS) has not dramatically increased over 
the years, the dangers of proliferation have become all too 
apparent as demonstrated by the A.Q. Khan network, and the 
Iranian, North Korean, and Libyan examples.
    The PAG believes, and I concur, that the construction of 
new facilities for the enrichment of uranium and reprocessing 
of spent nuclear reactor fuel, even for ostensibly peaceful 
purposes, poses an unacceptable long-term risk to the national 
security of the United States. You pointed to this same risk in 
your February 11, 2004, speech at National Defense University. 
The enrichment technology intended to produce fuel for nuclear 
power reactors can also be used to create material for a 
nuclear weapon, and the plutonium that is produced from 
reprocessing spent fuel is also suitable for nuclear weapons 
and susceptible to diversion to terrorists. The spread of 
enrichment and reprocessing capabilities will dangerously 
increase the chances that more nations will develop their own 
nuclear weapons and that terrorists might obtain fissile or 
radiological materials for a crude or even highly destructive 
nuclear bomb. It is therefore incumbent upon the United States 
to lead an international effort to halt the expansion of 
enrichment and reprocessing to new countries.
    The PAG found that the use of nuclear power is likely to 
increase, both in developed countries and, in particular, in 
developing countries. Importantly, however, the experts of the 
PAG concluded that expansion of nuclear power does not 
require--either technically or economically--the construction 
of enrichment or reprocessing facilities in countries that do 
not currently have them. ``Under most scenarios,'' the PAG 
found, ``excess capacity already exists and will continue to 
exist for many years.''
    Therefore, I believe the United States should adopt as a 
basic nonproliferation principle that countries which forego 
their own enrichment and reprocessing programs have guaranteed 
access to nuclear reactor fuel at reasonable prices. I 
encourage your administration to begin to implement this policy 
immediately by seeking international concurrence on new 
arrangements to control enrichment and reprocessing technology, 
a Proliferation Safeguards Initiative, or PSI-II. Such efforts 
would also aim to continue to strengthen, in terms of 
technology, funding, and policy, the existing international 
nuclear safeguards regime. Taking as a model your successful 
Proliferation Security Initiative, PSI-II should be a U.S.-led 
coalition of willing states, assembled without the cumbersome 
and time-consuming negotiation of new international agreements.
    Based on my own experience and the discussions of the PAG, 
I would recommend several criteria to guide the creation and 
operation of this effort.

          1. It should seek to buttress, not undermine, the NPT 
        and the Nuclear Suppliers Group.

          2. It should be accompanied by a significant increase 
        in funding for the Safeguards Division of the 
        International Atomic Energy Agency to improve its 
        ability to meet its inspection and verification 
        responsibilities. The IAEA is underfunded to perform 
        its current tasks and would be required to do much more 
        should nuclear energy become more widespread globally. 
        The current staffing and budget of the IAEA cannot 
        sustain further stress, nor can the world afford to 
        allow another state to develop nuclear weapons in 
        secret.

          3. Non-nuclear weapon states which agree to accept 
        fuel services and leasing of fuel, in return for giving 
        up reprocessing and enrichment facilities, must consent 
        to wide access and close monitoring of their nuclear 
        energy activities, exceeding the requirements of the 
        IAEA Additional Protocol. This would include 
        activities, locations, and information not directly 
        related to nuclear material itself, but that could be 
        associated with nuclear weapons development.

          4. Countries wishing to initiate or expand a nuclear 
        power program should be required to demonstrate an 
        economic need for such nuclear power capacity before 
        they are granted access to nuclear fuel services. The 
        United States should develop criteria to evaluate such 
        need.

          5. The United States should explore means for 
        disposing and storing of spent nuclear fuel from those 
        countries which agree to accept a closed fuel cycle and 
        forego a reprocessing capability. No such repository 
        for spent fuel now exists for use in an international 
        closed fuel cycle plan. Past discussions in this area 
        have suggested that Russia would be a candidate for 
        such a repository.

          6. The administration should take great care as it 
        implements the Next Steps Strategic Partnership with 
        India's nuclear power sector to which you have just 
        agreed. We must provide clear and credible warnings to 
        current non-nuclear weapon states party to the NPT that 
        they will not be able to gain similar arrangements 
        should they leave the treaty.

    Mr. President, I look forward to working closely with you 
to prevent the proliferation of these dangerous technologies. 
The future peace and security of our Nation and the world is at 
stake. The inherent dual-use nature of the nuclear fuel cycle, 
combined with its wide availability in civilian nuclear power, 
uniquely challenges the world to find ways to stop diversion of 
such technologies to military uses while ensuring that no state 
uses the cover of nuclear power to develop nuclear weapons. A 
decade ago, I took action with those in Congress who were ready 
to meet the threat of proliferation posed by the collapse of 
the Soviet Union. Today, we must work together to ensure that 
the global nonproliferation regime does not collapse through 
inaction.
            Sincerely,
                                          Richard G. Lugar,
                                                          Chairman.
                                ------                                

                                                      July 1, 2005.
Memorandum to: Senator Richard G. Lugar, Chairman, Senate Committee on 
        Foreign Relations
From: Policy Advisory Group on Nonproliferation
Subject: Interim Report On Nuclear Threat Reduction and the Fuel Cycle
    Mr. Chairman: With the Review Conference on the Nuclear 
Nonproliferation Treaty (NPT) behind us, the Senate Foreign 
Relations Committee, under your leadership, is looking to the 
long-term future of the NPT System. The Policy Advisory Group 
(PAG) has started its work in making recommendations for 
American leadership to update and improve the workings of the 
NPT and related nonproliferation efforts over the long term.
    While the PAG has only begun its deliberations, it has 
already arrived at some observations with respect to one key 
issue: How the nuclear nonproliferation system of the future 
should treat the proliferation of uranium enrichment and 
plutonium reprocessing.
    President Bush addressed the danger posed by the spread of 
fuel-cycle capabilities to more countries in his February 11, 
2004, speech at National Defense University. The PAG supports 
the priority the President attached to this issue and urges the 
U.S. Government to take a strong position of international 
leadership to stop the proliferation of uranium enrichment and 
plutonium reprocessing facilities and technology. After 9/11, 
the specter of nuclear terrorism and its close connection to 
nuclear proliferation must occupy center stage in our national 
security policy.
    An initiative to oppose the proliferation of enrichment and 
reprocessing capabilities to additional countries can directly 
reinforce the effort to stop the Iranian nuclear program, since 
the international understanding it would seek would be fully 
consistent with the European-led multilateral effort backed by 
the United States to prevent Iran from completing enrichment 
facilities. And while influencing North Korea is probably well 
beyond the reach of any such initiative, both North Korea and 
Iran would not have realized their nuclear ambitions nor 
continue their respective progress in the fuel cycle 
unchallenged if elements the system recommended here had been 
in place. Indeed, the 1991 North-South Denuclearization 
Agreement prohibited reprocessing and enrichment in both North 
and South Korea. Had it been implemented successfully, we might 
have an entirely different situation in the two Koreas today. 
Hindsight on the Iranian and North Korean crises therefore 
suggests the foresight necessary to prevent future situations 
like these from developing. The PAG believes that without such 
a system in place, the future world could contain many states 
engaged in enrichment and reprocessing, some of which would 
inevitably pose the threat of nuclear attack and the spread to 
terrorists of such knowledge, technology, and materials as 
possessed today by Iran and North Korea.
    The PAG has made these key observations in its 
deliberations:

1. The Dangers and Promise of Nuclear Power

   Proliferation of uranium enrichment and plutonium 
        reprocessing to additional nations is inherently 
        dangerous to U.S. national security because it can lead 
        to both state and nonstate nuclear threats:

      State proliferation: Possessing these facilities brings a 
            state close to the point of a nuclear weapons 
            capability.
      Nuclear terrorism: Security failures at any such 
            facility, or during storage and transportation, 
            could provide a source of fissile material (highly 
            enriched uranium, or HEU, and plutonium) for non-
            state terrorists.

   Preventing this threat is only one component--but a 
        vital one--of a multi-layered defense against nuclear 
        attack. This multilayered defense ranges across the 
        spectrum of tools at our disposal, from diplomatic to 
        military action, and must address weaponization 
        research and development as well as fissile materials 
        production.
   Much of the expansion of nuclear power is likely to 
        take place in the developing world. This expansion 
        could be desirable on economic and environmental 
        grounds, but it can and must be accomplished in a 
        manner consistent with U.S. national security.
   This expansion in the use of nuclear power will 
        require uranium enrichment capacity that could also 
        produce tens of thousands of nuclear bombs per year, 
        and it could produce as a byproduct enough plutonium 
        for tens of thousands of additional nuclear bombs per 
        year.
   Expansion of nuclear power does not require 
        proliferation of enrichment or reprocessing--either 
        technically or economically--to countries that do not 
        have it. Under most scenarios, excess capacity already 
        exists and will continue to exist for many in states 
        with functioning nuclear fuel production facilities.
   On the other hand, were acts of nuclear terrorism to 
        occur because of ``loose'' fissile material, the 
        expansion of nuclear electricity generation would 
        likely be brought to an abrupt halt.
   National security, economics, and environmental 
        protection are therefore all in alignment in 
        recommending that the United States oppose the 
        proliferation of enrichment and reprocessing facilities 
        into new countries and especially into troubled 
        regions. The spread of such technology truly deserves 
        to be spotlighted as a centerpiece of 
        ``proliferation.''

2. The Fuel Cycle and the NPT

   A policy of active opposition to the spread, under 
        today's circumstances, of enrichment and reprocessing 
        know-how to countries that do not currently possess 
        such technology, in particular to troubled regions, is 
        consistent with the principal intent of the NPT. 
        Indeed, action in this area is essential to 
        strengthening the nonproliferation regime. Moreover, 
        opposition to the proliferation of enrichment and 
        reprocessing is made more urgent by technological, 
        security, economic, and environmental forces, all 
        equally compelling:

      Technology: On the weapons front, when the NPT was first 
            signed it was beyond the reach of all but developed 
            nation states to master the art of fission bomb 
            design. In the interim, the general progress of 
            technology and the proliferation of specific know-
            how in bomb-making by the A.Q. Khan network, have 
            resulted in a situation in which the mere 
            possession of highly enriched uranium or plutonium 
            removes a major obstacle to bomb-making capability 
            for the possessor whether they are a state or non-
            state actor. Today, on the nuclear power front, the 
            once-through fuel cycle producing and using low-
            enriched uranium for power generation is the fuel-
            cycle and plant design of choice. Advanced 
            ``proliferation-resistant'' reactor designs may be 
            technically and economically feasible in the 
            future; however, interest is growing in some 
            circles for greater use of closed fuel cycles. 
            These factors must be taken into account now, while 
            there is more opportunity to influence the future 
            to ensure that U.S. national security concerns are 
            met.
      Security: Two major events since the signing of the NPT 
            have changed the nature of nuclear security in 
            fundamental ways. First, the collapse of the Soviet 
            Union showed that seemingly stable governments in 
            possession of nuclear capabilities can be replaced 
            by fluid, even chaotic, situations in which nuclear 
            capabilities can fall into dangerous hands. Second, 
            the terrorist attacks of 9/11 should be a clear 
            wakeup call that nonstate nuclear use is likely if 
            fissile materials are available to certain 
            terrorist groups that are accessing the know-how.
      Economics: When the NPT was signed the future of nuclear 
            power seemed open-ended: Electricity generated by 
            nuclear power would be ``too cheap to meter''; 
            every country's economic future would depend on 
            nuclear power; and importantly, the economics of 
            expanding nuclear power would require many 
            locations where uranium would be enriched and 
            plutonium would be reprocessed. Today experts and 
            industry have a more refined view of the economics 
            of nuclear energy. There is enough enrichment 
            capacity in existing facilities and their planned 
            expansion to fuel all the world's reactors for many 
            years, and at reasonable prices. Reprocessing is 
            not currently economically competitive with once-
            through fuel cycles, and there is plenty of raw 
            uranium to fuel the once-through cycle long into 
            this century under most scenarios. Today we can 
            assert that stopping the proliferation of 
            enrichment and reprocessing need not slow the 
            spread of nuclear power nor increase its cost.
      Environment: Carbon-free nuclear electricity generation 
            could be an important ingredient in slowing global 
            warming, displacing natural gas, some oil, and 
            especially coal.

   While the United States is therefore entirely 
        justified in a policy of opposition to the 
        proliferation of enrichment and reprocessing, we are 
        not well positioned to promote such a policy 
        internationally and will need the help of other 
        nations:

      Most countries with enrichment and reprocessing are 
            nuclear weapon states, which introduces political 
            complications arising from claims made by non-
            nuclear weapon states regarding Article VI of the 
            NPT.
      Our position as a nation with an active uranium 
            enrichment industry likewise makes it difficult for 
            us to appear evenhanded in opposing the 
            proliferation of enrichment facilities.
      Any approach that denies to some what is permitted to 
            others, no matter how valuable, must address the 
            political question of discrimination or fairness.

   Success in opposing the proliferation of enrichment 
        and reprocessing will therefore require adroit and 
        sustained U.S. diplomacy that systematically enlists a 
        growing body of international support.

3. Assessing Proposals for U.S. Policy

   The PAG has reviewed a number of specific proposals 
        for stemming the proliferation of enrichment and 
        reprocessing capabilities, including the President's 
        NDU proposals, IAEA Director General ElBaradei's, and 
        those of other governments (e.g., France) and 
        recognized experts. All have merits, yet all have 
        drawbacks and their own opponents.
   Many of these proposals overlap in one common 
        feature--that states foregoing their own enrichment or 
        reprocessing facilities will be guaranteed various 
        cradle-to-grave fuel services for their nuclear 
        reactors at reasonable prices and within a strictly 
        controlled and verified transfer system. U.S. policy 
        should therefore focus on this common ground to stand 
        the best chance of succeeding. A number of mechanisms 
        have been suggested to provide guarantees to states 
        that renounce their own capacity to enrich nuclear 
        fuel, and to provide inducements to store or reprocess 
        spent fuel outside of their country. The PAG assesses 
        that a combination of industry contract provisions, 
        national policies, and strengthened safeguards can 
        together provide reasonable assurance of fuel supply to 
        such states.
   We believe that identifying the ``best'' compromise 
        to bring the necessary players together will require 
        further work and, above all, a vigorous testing of the 
        diplomatic waters.

4. Interim PAG Recommendations

   The PAG does, however, make the following 
        recommendations for USG action at this time:

      The administration should attach a high priority to 
            achieving broad international agreement to a U.S. 
            policy opposing proliferation of enrichment and 
            reprocessing. The priority attached to this mission 
            should be comparable to that devoted by the USG to 
            the Proliferation Security Initiative (PSI), a 
            ``Proliferation Safeguards Initiative'' or PSI-II.
      The diplomatic strategy pursued should take PSI as its 
            model--an effort that has been able to garner the 
            support of willing states. An initial ``core 
            group'' of suppliers and consumers of fuel services 
            should be carefully selected as a starting point.
      The administration should be prepared to amend the 
            President's February 11, 2004, proposal if further 
            analysis or diplomatic experience suggests that 
            doing so will lead to a greater chance of success.
      The administration should work with the Foreign Relations 
            Committee if it finds that amendments to U.S. law 
            are necessary to implement fuel-cycle proposals.
      The USG should be willing to accept a temporary 
            arrangement (perhaps 10 to 15 years) that might 
            lead over time to a more permanent arrangement.
      The United States can and should use this fuel-cycle 
            nonproliferation initiative synergistically to 
            promote other national security goals:

    {time}  This initiative could reinforce efforts to 
            encourage responsible practices by states that are 
            not parties to the NPT (e.g., India) and might 
            provide some additional realms for cooperation to 
            prevent further proliferation.
    {time}  The initiative could reinforce the continuing 
            effort to encourage the Russian Government to take 
            more active leadership on the security of nuclear 
            materials and to make the Russian nuclear power 
            infrastructure more secure and more in line with 
            today's economic realities. Russia could, for 
            example, downblend more HEU as a strategic reserve 
            for assured supply, and build a profitable 
            international spent fuel repository.
    {time}  The initiative could further remove any veil of 
            economic necessity from the Iranian and (to the 
            extent this claim is made by North Korea) North 
            Korean nuclear programs and further isolate these 
            states diplomatically.
    {time}  The initiative would reinforce and augment key 
            counterproliferation efforts such as the newly 
            globalized Cooperative Threat Reduction program 
            (``Nunn-Lugar''), National Missile Defense, PSI, 
            UNSCR 1540, and the new priority for 
            counterproliferation within DOD's Quadrennial 
            Defense Review by adding fuel cycle restraints to 
            the Nation's growing layered defense against 
            nuclear attack and the proliferation of nuclear 
            weapons.
    {time}  The initiative would express the willingness of the 
            United States to spearhead multinational 
            initiatives where they serve the interests of U.S. 
            and international security.
    {time}  Above all, the initiative would reflect President 
            Bush's determination that his highest priority is 
            to ``not permit the world's most dangerous regimes 
            and terrorists to threaten our Nation and our 
            friends and allies with the world's most 
            destructive weapons.''

      The President should appoint a senior diplomat with 
            authority and accountability for success in this 
            initiative.
      The administration should report progress in this 
            endeavor to the Congress, and the Senate Foreign 
            Relations Committee should engage the 
            administration to further prospects for success. 
            The PAG stands ready to assist the committee in 
            monitoring and assessing progress.

    Mr. Chairman, following the collapse of the Soviet Union 
you and Senator Nunn and your Senate colleagues saw more 
clearly than most that the terms of nuclear security had 
changed fundamentally and that a basic change in the American 
approach to the nuclear relationship between Moscow and 
Washington was required. Today in the wake of 9/11, your 
appointment of this PAG signifies how urgent it is to make 
equally profound changes in the way nuclear proliferation is 
countered due to the threat of nuclear terrorism. We appreciate 
your leadership and are honored to serve. We will continue to 
deliberate and to make recommendations to the committee on this 
and other aspects of updating the NPT and the system of 
counterproliferation efforts surrounding it.
            Sincerely,
                    Ashton B. Carter, Cochair; Ronald Lehman II, 
                            Cochair; Robert Einhorn; Alan A. Foley; 
                            Arnold Kanter; David Kay; Susan Koch; 
                            Lawrence Scheinman; William Schneider, Jr.

                                    

      
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