CELEX: 51988PC0311
Language: en
Date: 1988-06-03
Title: Draf EEC - (A) JOINT COMMITTEE DECISION amending, in relation to heading No 84.01, the List in Annex III to Protocol No 3 concerning the definition of the concept of 'originating products' and methods of administrative cooperation#Proposal for a COUNCIL REGULATION (EEC) on the application of Decision No /88 of the EEC - (A) Joint Committee amending, in relation to heading No 84.01, the List in Annex III to Protocol No 3 concerning the definition of the concept of 'originating products' and methods of administrative cooperation#(presented by the Commission) (A) Austria/Finland/Iceland/Norway/Sweden/Switzerland

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (88) 311
Vol. 1988/0120
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                        COM(88 ) 311 final
                                                        Brussels , 3 June 1988
                                               Draf t
                          EEC - ( A ) JOINT COMMITTEE DECISION
        amending , in relation to heading No 84.01 , the List in Annex III
                to Protocol No 3 concerning the definition of the
                 concept of 'originating products' and methods of
                                 administrative cooperation
                                          Proposal for a
                                  COUNCIL REGULATION ( EEC )
  on the application of Decision No               / 88 of the EEC - ( A ) Joint Committee
        amending , in relation to heading No 84.01 , the List in Annex III
          to Protocol No 3 concerning the definition of the concept of
                        'originating products' and methods of
                                 administrative cooperation
                               ( presented by the Commission's?
                                                                                    \;A
                                                              й       \
                                                                   Ф/Г'7
  ( A ) Austria / Fin land / Ice l and / Norway / Sweden / Switzer land
 ---pagebreak---                                  EXPLANATORY MEMORANDUM
In 1972 , when the EEC-EFTA Free Trade Agreements were being negotiated , it was
decided with regard to the origin of nuclear fuel elements of heading No . 84.59
( 1 ) to derogate from the basic rule applied in respect of products covered by
Chapter 84 of the CCT . This derogation was subsequently extended twice ; the
latest decision extending the derogation until 31 December 1988 entered into
force with the publication of Council Regulations ( EEC ) Nos 3619 to 3625 of 21
December 1982 and Decision No . 1 /82 of the relevant EEC-EFTA Joint Committees
( O.J. No . L 382 of 31.12.1982 , p. 17-30 ).
When this     extension was adopted by the Council as the common position of the
Community,    the Commission undertook to carry out a detailed impact study on the
potential     economic implications for the Community of the choice of rules
applicable    over an extended period . A report on this study is attached to this
proposal .
The report shows that the rule normally applied - requirement of 60 % added
value in the Community or in an EFTA country - is too strict , since the cost
of non-originating natural uranium alone could account for 50 % of the value of
the finished product .        When the report was discussed at a meeting of the
Committee on Origin attended by nuclear fuel cycle experts , a very substantial
majority of the experts expressed a preference for a further extension on the
current derogation beyond the 31 December 1988 , because of the uncertainties
still affecting the nuclear fuel element market and the concern not to
jeopardize possible future action .
Experts from only two delegations were in favour of adopting permanent rules .
The French delegation asked that the normal percentage rule given in the List
in Annex III to Protocol No . 3 should be applied as from 1 January 1989 , while
agreeing that the requisite percentage of value added in the Community or in an
EFTA country should be cut from 60 % to 50 % .
The German delegation , on the other hand ,         concerned to pul: an end to the
uncertainty affecting fintis and potential customers for nuclear fuel elements
as a result of the application of rules on a provisional basis , was in favour
of making the extension permanent ( this would mean simply abandoning any List
percentage rule in favour of the general rule under enrich a change of heading
confers originating status on the product obtain*.-") .
101100 !:::; the 1 : croduci ion of the hasTecoi.o e Co.-rono g 'o^ser Croon and Ceding
head in : to . 84 . Cl .
 ---pagebreak---                                      - 2 -
Proposai
As it is necessary to decide now what the rule of origin to be applied to
nuclear fuel elements will be after 31 December 1988 - because long-term
contracts already concluded will run for a number of years to acme - the
Commission feels that it would be prudent to opt for a further derogation until
31 December 1995 , partly in order to enable the Community industries in the
sector concerned that are unable to attain the requisite percentages to
continue to have the advantage of preferential treatment in EEC-EFTA trade , and
also because same firms which have been consulted are highly sceptical about
the possibility of combining in the near future both the enrichment and the
fabrication operations that are necessary for attaining the threshold of at
least 50 % added value in the Cormunity , notably on account of the long-term
nature of contracts concluded for varying delivery periods .
 ---pagebreak---                                                  DRAFT
                      EEC -    (A)      JOINT COMMITTEE DECISION
                   amending, in relation to heading No 84.01 , the List in Annex III to Protocol No 3 concerning
             the definition of the concept of ‘originating products’ and methods of administrative
                                                         coopération
     THE JOINT COMMITTEE,                                         HAS DECIDED AS FOLLOWS :
      Having regard to the Agreement between the Euro¬
     pean Economic Community and            ( B)
             . signod in Brusscls on ( C ) ,                                              Article I
                                                                  l hf ( nulmlr- rH.it if *) tn ( if.itliiK ) No 84.01 at
      Having regard to Protocol 1 concerning the dclmi           pi i“.;enl. in the List in Annex 111 to Protocol
     tion of the concept of ‘originating products’ and           No 3 is hereby replaced by the following :
     methods of administrative cooperation ( hereinafter
     referred to as ‘Protocol 3‘ ), and in particular               'For nuclear fuel elements of heading No
     Article 28 thereof,                                             84.01 , the role in columns (3) and (4 ) do
                                                                     not apply inti l 31 December 1995' .
    Whereas the footnote contained in the List in
    Annex III to Protocol No 3 derogating in res¬
    pect of nuclear fuel elements from the origin
                                                                                         A rticle 2
  ' rule applicable to Chapter 84 of the Harmo¬
    nized Comrodity Description and Coding System
    ( H.S.)is valid only until 31 December 198& ;                This Decision shall enter into force on lfJuly 1988 .
   whereas nuclear fuel elements of heading No84.01
   manufactured from non-originating uranium
   enriched in the Community do not yet satisfy the
   basic requirements of the rules on origin applicable
   to Chapter 84 and will probably not do so in the
   foreseeable future ; whereas it is therefore necessary        Done at Brussels ,
   to extend the derogation for a further period ;
   Whereas in the nuclear fuel industry contracts are
   concluded for long periods and well in advance of                                        For the Joint Committee
   the date when supplies are commenced ; whereas it                                               The President
   is advisable to provide for legal irrlumtv m this eon
   nectlon ; whereas it is therefore necessary io extend
   the derogation at this time,
( A ) Austria , Finland , Iceland , Norway , Sweden , Switzerland
( B ) The Republic of Austria                                    ( C ) 22 July 1972
        The Republic of , Finland                                         5 October 1973
        The Republic of Iceland                                          22 July 1972
                                                                         14 Mai    1972
        Th® Kingdom of Norway
        The Kingdom of Sweden                                            22 July 1972
        The Swiss Confederation                                          22 July 1972                                 tf *
                                                                                                                        /:
                                                                                                                        &
 ---pagebreak---                                            Proposai for a
                                   COUNCIL REGULATION ( EEC)
              on the application of Decision No / 88 of the EEC- ( A ) Joint Committee amending,
               in relation to beading No 84.01 , the List in Annex III to Protocol No 3 concerning the defi
        nition of the concept of ‘originating products’ and methods of administrative cooperation
THE COUNCIL OF THE EUROPEAN                                      Whereas this Decision shall be applied in the Com ¬
COMMUNITIES,                                                     munity ,
Having regard to the Treaty establishing the Euro¬
pean Economic Community , and in particular                      HAS ADOPTED THIS REGULATION :
Article 1 13 thereof.
Having regard to the proposal from the Commis¬
sion,                                                                                   Article I
Whereas the Agreement between the European                       For the application of the Agreement between the
Economic Community and                      (B ) ( 1 )           European Economic Community and            (B)
        was signed on ( C )           . and entered into                   , Joint Committee Decision No / &8sball
force on      (D )                                               apply in the Community .
Whereas by virtue of Article 28 of* Protocol No 3 c
ceming the definition of the concept of 'originating
                                                                                        A rucle 2
products’ and methods of administrative coopera ¬
tion, which forms an integral part of the Agreement ,
the Joint Committee has adopted Decision No /88                  This Regulation shall enter into force on the third
umending, in relation to heading No 84.01 , the                  day following its publication in the Official Journal
 List in Annex III to that Protocol ;                            oj the European Communities .
               This Regulation shall be binding in its entirety and directly applicable in all Member
               States .
               Done at Brussels ,
                                                                                For the Council
                                                                                 The President
   (A) AstHa/Finland/Iceland/Norway/Sweden/Switzerland
   (B) the Rqoublic of Austria                       ( C ) 22 July 1972                  CD) 1 January 1973
         the Republic of Finland                            5 October 1973                      1 January 1974
         the Republic of Iceland                           22 July 197?                         1 April 1973
        the Kingdom of Norway                              14 May 1973                          1 July    1973
        the Kingdom of Sweden                              22 July 1972                         1 January 1973
        the Swiss Confederation                            22 July 1972                         1 January 1973
  (1 )  Austria
        Finland
                             0J No  L  300,    31.12.1972,    p.  2
        Iceland
                             CJ No  L  328,    28.11.1973,    p.  2
                             0J No  L  301 ,   31.12.1972,    p.  2
        Moruay               0J No  L  171 ,  27.06.1973,     p.  2
        Staden               0J No L 300"      31.12.1972, p. 97
        Switzerland          0J No L 300, 31.12.1972, p. 189
 ---pagebreak---                                  ANNEX : REPORT
    EEC-EFTA RULES OF ORIGIN
CONCERNING NUCLEAR FUEL ELEMENTS
                                                *£5
 ---pagebreak---  Ç0NIENI5
   I.    Introduction and background
  II .  The various stages of the nuclear fuel cycle and their
         connection with the headings of the Common Customs Tariff
III .   Value added to the finished product at each stage of the
        fuel cycle
  IV .  Trade in fuel elements between EEC countries and those
        of EFTA
   V.   Comments by and positions of the Member States in
        relation to the problem of choosing rules of origin
        applicable in the long term to nuclear fuel
ANCJIX : Questionnaire
 ---pagebreak---                      EEC-EFTA (*) RULES OF ORIGIN
                   CONCERNING NUCLEAR FUEL ELEMENTS
I. Introduction and background
   1 . Trade between the countries of the EEC and those of EFT A is the
       subject of a set of free-trade agreements .    Generally speaking ,
       customs duty on industrial product has been reduced to zero
       provided that the products traded satisfy certain conditions .
       These conditions are laid down in Protocol No 3 to each agreement
       concerning the concept of " originating products " and methods of
       administrative cooperation ; they provide for a given level of
       working or processing to be carried out where the products have
       been imported from non-member countries .
       The purpose of the rules of origin is to ensure that the products
       which benefit from preferences are those manufactured in countries
       which are party to the agreements and not products from other
       countries .
   2 . Nuclear fuel elements fall within the general category in respect
       of which the basic rule of origin provides that the value of products
       from countries not party to the agreements which are used for the
       manufacture of a finished product shall not exceed 40 X of the value
       of the " ex-works " price . In other words , not less than 60 X of the
       value of the finished product must be provided in the form of
       materials or services in the exporting country , the EEC being
       considered as a " single exporting entity".
   3 . In 1972 , when the EEC-EFTA agreements were being negotiated, it was
       clear that nuclear fuel elements could not comply with the basic
       rule , since the Community was at that time an importer of uranium
       and of enrichment services , that is to say , of enriched uranium .
       There were indeed plans for enrichment plants within the Community ,
       but it was not possible to know when those plans would be imple ¬
       mented or what the relative prices of the products would be . It
       was in consequence decided to derogate from the basic rule until
       31 December 1977 by suspending the value limit of 40 X so as to
       enable nuclear fuel elements , fabricated by making use of imported
       enriched uranium , to benefit from preferences in the context of
       EEC-EFTA trade .
(*) Austria , Finland , Iceland , Norway             Sweden and Switzerland .
 ---pagebreak---                                                                               k
                                                                              'è
                                - 2 -
 4 . This derogation was subsequently extended twice ; the last decision ,
      extending the derogation from 31 December 1984 until 31 December 1988 ,
      entered into force with the publication of Council Regulations ( EEC )
      Nos 3619 to 3625 of 21 December 1982 and Decision No 1 / 82 of the
      relevant EEC-EFTA Joint Committees .
 5 . When the advisability of further extending the exemption of nuclear
      fuel elements from the application of the basic rule was being
      discussed, the Working Party on Atomic Questions was requested to
      deliver its opinion on this matter . The Working Party was unable
      to reach an unanimous decision . The French delegation , with a view
      mainly to promoting the enrichment industry that has developed in
      the Community since the entry into force of the EEC-EFTA agreements ,
      had suggested that the derogation should be dropped , but that the
     60 % added value required under the basic rule in order to obtain
      duty-free admission should , in the case of nuclear fuel elements ,
      be reduced to 50 ^ or 40 % . However , the majority of the delegations
     indicated their preference for an extension of the derogation at
     that stage .
6 . The Commission , with due regard to the views of the Working Party on
     Atomic Questions , then proposed to the Council that the derogation
     be extended only up to 31 December 1988 instead of 31 December 1990
     as set out in the initial draft decision . The Council , when approving
     the Commission 's proposal as a Community position within the Joint
     Committee , had the statement suggested by the Commission entered in
     its minutes :
     " Bearing in mind the importance and the complexity of the industries
     involved , the Commission undertakes to carry out as soon as possible
     a detailed study of the economic impact which the choice of rules
     applicable in the long term could have on the Community ".
7 . This report presents the study of that impact which the Commission
     undertook to carry out . It was prepared with the assistance of
     experts from the various Member States concerned with the subject .
                                                                            3
 ---pagebreak--- II . The various stages of the nuclear fuel cycle and their connection
      with the headings of the Common Customs Tariff
      1 . The following considerations are limited to enriched uranium-oxide
           fuel elements for nuclear power stations equipped with thermal
           reactors of the LWR and AGR* types . This limitation is justified
          by the fact that :
          - decisions were taken several years ago within the Community to
              discontinue the development of gas-cooled natural uranium-metal -
              fuelled nuclear power stations ;
          - the EFTA countries do not operate gas-cooled ,, natural uranium-
             metal - fuelled nuclear power stations and have concentrated , as
             have the Community countries , on the development of the light -
              water concept ;
          - mixed uranium- and plutonium-oxide fuel elements which serve to
             fuel fast breeder reactors or as recycling fuel for LWR and AGR
             thermal reactors will be fabricated in the Community without
             any major contribution from a non-Community country . In addition ,
             it is not expected that the market in this type of fuel will
             account for a substantial share of the fuel-element export market
             before the first decade of the next century .
     2 . The flow sheet of the nuclear fuel cycle discussed in the following
          pages is set out below :
             uranium-ore concentrate       converted into gas   uranium hexafluoride
             ( yellow cake )  U308         and purified in a       UF6
             CCT 26.01 **_                 conversion plant     CCT 28.50.21.00
                                                                enriched in 235U in
                                                                an enrichment olant
             enriched uranium              converted into       uranium hexafluoride
             dioxide     U02             <c
                                           powder in the          UF6    enriched in
             CCT 28.50.4100
                                           fabrication plant vl 235U
                                                                CCT 28.50.4100
            compressed and sintered
             into pellets which are
            then packed into tubes
                                       \!/
             rods fi lied with             assembled into       nuclear fuel
            urani um-dioxi de                                   elements
                                           fuel elements
            pellets      U02                                    CCT 84.59.3200
            CCT 28.50.4100
          LWR : Light-Water Reactor ( reactor with ordinary water )
          AGR : Advanced Gas-Cooled Reactor .
        ** Heading of the Common Customs Tariff .
 ---pagebreak---                                   - 4 -
 3 . The fuel-element fabrication chain , from the uranium-ore concentrate
      up to the assembly of rods into the fuel element (the finished
      product ), is made up of several well-defined stages . Certain Community
      countries possess fuel-cycle industries capable of carrying out only
      one or two stages in this chain , while others can cover the entire
      fuel cycle .
 4 . The Community is not an exporter of uranium . The value which the
      Community is capable of adding to the finished products can derive
      only from the conversion of imported natural uranium-ore concentrate
      and subsequent stages .
      As a general rule , the operator of a nuclear power station concludes
      long-term contracts for the supply of natural uranium* (often covering
      ten years ) three to five years before the delivery of the first fuel
      elements for the power station . The contractual obligation to supply
      uranium in most cases relates only to the real annual requirements of
      the power station . Furthermore , these contracts are in principle not
      linked with other supply contracts , for example those for conversion
     or enrichment services .
     However , a tendency has been observed on the part of the exporting
     countries to oblige their customers to purchase uranium in forms
     processed beyond the ore-concentrate stage . For example , Canada ,
     from which the Community has been importing 15 to 20% of its foreign
     supplies of uranium in recent years , requires that its customers agree
     to have almost all that material converted in Canadian installations ;
     the quantities which , by way of exception , are exempt from that
  . requirement are very small : about 5 to 10% .
5 . Five firms are at present carrying out the conversion operation in
     the western world , two of them in the Community : BNFL in the
     United Kingdom and Comurhex in France . The total available world
     capacity is in excess of requirements .
     The requirements for conversion services in the Community are
     currently well below the capacity available in the Member States .
     The utilisation rate solely for internal requirements will increase
     gradually and attain about 75% in 1990 . It can thus be said that
     the Community possesses a considerable potential for the export
     of conversion services to cover any requirements in Europe outside
     the Community . In addition, the capacities can be increased rapidly
     if necessary by expanding existing plants .
     Conversion services are , as a general rule , ordered by the operators
    about three to eight years before the delivery of the first fuel
    elements . The contracts at present cover a period of about ten years .
    They are also concluded independently of other supply contracts .
      Transactions in the short term, which are called " spot " transactions ,
       account for only about 10% of the world market tonnages .
 ---pagebreak---                                  - 5 -
     As shown in the Figure above , the fuel changes from heading 26.01
     to heading 28.50 of the Common Customs Tariff during the conversion
    of the ore concentrate into natural-uranium hexafluoride . In
     accordance with the rules of origin in force , this change of heading
     confers Community origin on materials and services which are not
    of that origin , i.e. , imported uranium in this instance . If this
    fuel is subsequently also both enriched within the Community and
    fabricated into fuel elements , the finished product is considered
    to be 100% of Community origin .
    To sum up , even without the existing derogation , the basic rule of
    60% is complied with if the importer uranium is converted into
    hexafluoride in the Community and then enriched and fabricated
    into fuel elements , also in the Community . If , however , the uranium
    hexafluoride is exported to a non-Community country for enrichment
    and reimported into the Community once again , the uranium loses
    the attribute of Community origin conferred on it as a result of
    the conversion operation .
6 . Enrichment is a stage of the fuel cycle which consists in increasing
    the uranium 's content of fissile isotopes . At present , there are
    five f ree-market -economy countries in the world which carry out this
    operation . Two firms in the Community have made substantial invest ¬
    ments over the last ten years :
    - Eurodi f operates a plant with a cjpacity of 10.8 million SWUs / year
       at Tricastin in France ( SWU = Separative Work Unit ). The capital
       of the company is held , inter alia , by firms in Member States of
       the Community : France (51,53%), Italy ( 16,25%) j   Belgium ( 11,11%),
       Spain ( 11,11% );
    - Urenco Ltd at present possesses a capacity of about 1,5 million SWUs /
       year . The company was set up by one German , one British and one
       Dutch firm on an equal shares basis ; it has plants in operation or
       under construction at Capenhurst , United Kingdom , Almelo ,
       the Netherlands , and Gronau , Federal Republic of Germany .
    The world enrichment capacity , which is currently about ^2 million SWUs /
    year , is considerably in excess of requirements , which amount to
    approximately 25 million SWUs*. Most of the excess capacity is accounted
    for by the United States , which dominates the world supply of enrichment
    services from a quantitative standpoint . It is estimated that there
    will continue to be excess world capacity up to 1995 / 2000 .
    As regards the Community , existing capacities and those that are
    being created will be ample to cover the requirements of the
    Member States alone until about 1995 . In view of the world excess
    capacity , which is a short-term phenomenon , and also of the sub¬
    stantial stocks built up on the past precisely because of that excess
    capacity , the enrichment market is very competitive . Furthermore ,
    this sector of European industry will probably have to cope in future
    *
      These are the requirements of countries with a free market    economy
                                                                               Λ
 ---pagebreak---                                     6 -
     with the gradual emergence of new competitors . As regards commercial
     conditions in this sector , enrichment contracts , as a general rule ,
     also cover a period of ten years and are concluded three to eight
     years before the delivery of the first fuel elements to the nuclear
     power stations .
     Enriched uranium is classified under heading 28.50 of the Common
     Customs Tariff. If it is imported from a non-Community country ,
     it is considered to be entirely of non-Community origin no matter
     what the origin of the materials added to , or the processing under ¬
     gone by the fuel before enrichment may be .
7 . The fabricatior stage comprises operations whereby , starting with
     enriched uranium hexafluoride , complete assemblies of fuel elements
     are produced ready to be inserted in reactors .
     From an industrial standpoint , the firms in this sector generally
     carry out all the operations from the conversion of enriched
     hexafluoride into uranium dioxide onwaros Isee Figure page 3 ).
    Most countries that possess a nuclear power programme also have
    one or more industries in this sector ; several countries in the
    Community and EFTA fall into this category . In this context , it
    should be noted that the EFTA countries are represented on the
    world nuclear fuel market only in the fabrication sector . Fabrication
    is characterised by relatively small investments and technologies
    which are easy to use at the desired scale ; it has considerable
     flexibility of adaptation to the demand .
    In the Community , six countries possess fabrication industries :
    the Federal Republic of Germany, Belgium, France , Italy , Uni ted Kingdom
    and Spain .       As regards the EFTA countries which operate nuclear
    power stations , Finland , Switzerland and Sweden , only Sweden at
    present possesses a fuel-element fabrication industry for light -
    water reactors .
    As in the case of the other fuel-cycle services , it can be Seen
    that the Community market is to a large degree independent as regards
    meeting internal requirements . Existing capacity and that wnich is
    being created suffice to meet requirements up to and beyond the
    1990s .
    The Community manufacturers have been able to obtain orders on
    the external markets . However , in view of ii,e world excess capacity,
    it must be expecteo that the European manufacturers will encounter
    very severe competition on all the export markets .
    Supplies of fuel elements are normally ordered for three to five
    annual refuellings . Contracts are generally concluded two to three
    years before delivery of the first reload . As a general rule , it
    is the operator of the power station who takes responsibility for
    supplying the requisite enriched fuel to the element manufacturer .
 ---pagebreak---                               7
The fuel remains classified under heading 28.50 throughout the
various fabrication operations until it is assembled into fuel
elements , after which the finished product is assigned to heading
84.59 .
 ---pagebreak---                                             - 8 -
III . Value added to the finished product at each stage of the fuel cycle
       1 . The table below presents the components that make up the total
            cost of the " finished product " on the basis of the quantities of
            materials and of the services required to produce one fuel element
            unit and of their unit costs . The impact of each stage on the
            total cost is indicated by its relative contribution to that cost .
                  Stage           Quantity^         Unit price            Cost      %
                                                                         ECU / kg
                                                                         enr . U
              Uranium            6.83 kgU           111 ECU/ kg U3         760     38
              Conversion         6.80 kgU             8 ECU / kg U           56     3
              Enrichment
                           1
                                 4.51 SWUs          192 ECU/ SWU4          866     43
               Fabri cati on     1 kg enr . U       311 ECU / kg enr . U   311     16
              Total cost         1 kg of
                                 finished                                 1993    100
                                 product
              Assumptions
              1
                Fuel enrichment = 3,35%
              ^Tails assay = 0,25%
              3Cost    of natural uranium: US t 30/ lb U.,Qg
                ( US 2 1 = 1.424 ECU ; 1 January 1985 )
              4
                Enrichment cost : US t   135 / SWU
              Total cost of the finished product per unit of weignt
      2 . The figures set out in the example apply to a fuel element for light -
           water reactors of current technology . The data relating to unit costs
           are those applying at present on the world market .
           However , the past shows that all these data can vary considerably as
           a result either of technological progress or of variations in unit
           costs or monetary parities . Account should hence also be taken , when
           assessing the impact of the various stages of the fuel cycle on the
           total cost , of a possible variation in these parameters in the future .
 ---pagebreak---                                     - 9 -
 3 . The quantities of materials and the services required for the
      production of one fuel-element unit are first and foremost a function
      of the percentage of fuel enrichment .
      Modern nuclear power stations equipped with a light-water reactor
      operate with fuel enriched to about 3% . In the preceding example an
      enrichment of 3,35% was adopted .
      It emerges from the table that , on the basis of the technical
      characteristics and economic data presented , the two items , uranium
      and enrichment service , are the most important and each accounts for
      about 40% of the total cost . Fabrication accounts for only about
      15%, while conversion is only a marginal component , about 3%, of
      the total cost .
     Since the Community does not export uranium , this breakdown shows
     that the fuel would have to be processed or worked entirely in the
     Community from the conversion stage on in order for Community origin
     to be conferred upon it in the absence of the present derogation ,
     because the basic rule requires that Community industry add a value
     of 60% to fuel elements before the elements can benefit from
     preferences in the context of EEC-EFTA trade .
4 . The example set out in the table above also shows that the 60% rule
     is very severe . For example , it is only necessary for the natural
     uranium to have to be imported in ^ he form of hexafluoride ( see
     paragraph 4 of Section II ) for the -'uel-cycle industry no longer to
     be in a position to add the requisite value . The same effect is
     produced if a tails assay of 0,3% is chosen instead of that of 0,25%
     given in the reference example ; 1 if all the other parameters remain
     constant , the uranium item in this case exceeds its contribution of
     40% to the total cost , which then amounts to 42% .
5 . It must be concluded from the foregoing that the value of 60% is
     too high to ensure that , in the context of EEC-EFTA trade , the
     Community fuel-cycle industry will with certainty benefit from the
     preferences . However , a complete derogation from the rule would
     signify that the enrichment industry , the most important upstream
     sector of the fuel cycle , would be excluded from the system of
     preferences . The question then arises of determining what value
     should be fixed in order to find a definitive solution to the
     problem which would both maintain the system of preferences and
     guarantee certain advantages to the enrichment sector . It is also
     certain that , if the value under the present basic rule were
     lowered , the conversion sector might be handicapped . In order to
     find an answer to these questions , a sensitivity study was carried out
     for the purpose of evaluating the impact of a variation in the most
     important parameters on the contribution to the total cost of the
    various stages indicated in the table .
      The tails assay indicates the extent to which the natural uranium
       ( ur3nium-235 content = 0,711% ) is depleted of its fissile isotope
        i n the enrichment plants . A higher tails assay requires more natural
       uranium and less separative work in order to obtain 1 kg of enriched
      uranium and vice versa .
 ---pagebreak---                                       10 -
 6 . In this sensitivity study , the parameters referred to above were
      made to vary one after the other , the remaining parameters being
      kept constant in the vicinity of their reference value as follows :
      - fuel enrichment : 2% and 4%
      - price of uranium : US t 25 / lb and US S 40 / lb
      - enrichment cost : US I  100 / SWU and US t 160 / SWU .
      The range of enrichments takes into account both enrichments of the
      fuel elements fabricated at present for the cores of light-water reactors
      and those of elements for reactors that are being developed and
      will attain higher burn-up rates requiring more highly-enriched fuel .
     The uranium price range reflects the variation undergone by the
     average annual price over the last five years         in long-term supply
      contracts and also incorporates a substantial margin for any future
     price increases .
     As regards the prices of the separative work unit ( SWU ), divergences
     from the reference price adopted in the example set out in the table ,
     take account of developments on the enrichment market in the recent
     past . The reference price of US t 135 / SWU is that laid down in the
     new enrichment contracts (" Utility Services Contracts ") which the
     USDOE has been offering since October 1984 on the world market .
     In view of the stiff competition on this market and of prospective
     technological developments in this field , it is to be expected that
     the enrichment price expressed in constant currency will not diverge
     in the foreseeable future from the above price range .
     In the conversion and fabrication sectors , the industries are well
     established and their costs , in constant currency , should in future
     be a stable and fixed part of the total cost of the fuel element .
     In addition , since any cost variations in these sectors will have
    only a small effect on the total cost , their impact on the conclusions
    to be drawn from this exercise will be merely secondary .
7 . The most interesting result of the sensitivity study in reiction to
    the problem in question is provided by the limit values of the
    " uranium " item obtained by varying one or other of the parameters :
    these are 34% and 45% and are due to the respective lower and upper
    values adopted for the prices of natural uranium ( US t 2f / lb and
    USS 40 / lb ).
    The upper value given above ( 45% ) which limits the contribution
    that Community industry can made to fuel elements in the event of
    an increase in the price of uranium can also be reached by the
    effect of a decrease in the enrichment price from US t 135 / SWU to
    US S 100 / SWU . Consideration should thus be given to what might occur
     if an increase in the cost of uranium occurred in parallel with a
     decrease in the cost of enrichment .
       1
          In Europe , this average price varied between US $ 31 and US $ 36
          per pound .
 ---pagebreak---                                 - 11
    In such a case , the tails assay may have a regulating function : by
    adopting lower tails assays , i.e. , by depleting the uranium to a
    greater extent in the enrichment plants , the fuel-cycle industry
    would be capable of optimising the cost of enriched uranium ( see
    footnote to page 9 ).
    The existing enrichment plants are in a position to vary the tails
    assay between limits of about 0,2% and 0,3% .
    If account is taken of a variable assay between the limits set out
    above and if it is accepted that the lower enrichment-price value is
    US t 100/ SWU and the upper uranium price value is US t 40 / lb , it can
    be seen that the " uranium" item will in no case exceed 50% .
8 . On the basis of the foregoing considerations , it must be concluded
    that it would be reasonable to reduce the value of 60% in the basic
    rule of origin to 50% in order to enable the Community fuel-cycle
    industry to benefit as far as possible from preferences in the
    context of EEC-EFTA trade .
 ---pagebreak---                                        - 12 -
IV . Trade in fuel elements between EEC countries and those of EFTA
      1 . The questionnaire appended hereto was sent to the Member States of
           the Community that possess nuclear programmes in order to obtain
           information on the present situation and prospects as regards trade
           in fuel elements between Member States of the EEC and those of EFTA .
           One of the Community countries was not able to provide the data
           requested, since it is prohibited by the taw on statistical
           information from divulging anything that might serve to identify i
           particular firm .
           On grounds of confidentiality , the replies obtained cannot be
           reproduced here country by country . T he values presented below are
           either overall values for all the Community countries that replied
           to the questionnaire or average or uppt'' or lower values .
      2 . The total value of the fuel elements exported from Community countries
           to EFTA countries amounts to about 0.5 thousand million ECU for the
          period 1972-82 . The share of the market of fuel elements manufactured
           within the Community in relation to the total value of the market
          obviously varies from one manufacturer to another . According to the
           replies , it is between about 10% and 25% of the turnover of firms
          that have obtained orders from countries belonging to EFTA .
          As regards estimates for the period up to 1988 , these firms forecast
          an increase in absolute value of their exports to EFTA countries ,
          but not an increase in relative value , i.e. , in relation to their
          total production of,<. fuel elements .
          By 1988, these industries will probably be joined by other manufacturers
          in the Community who so far have not exported fuel elements to EFTA
          countries .
     3 . On the other hand , the imports of fuel elements from EFTA countries
          to the Community during the period 1972-82 were insignificant . In
          the case of the period 1982-88 , a level, of 0.1 thousand million ECU
          could be attained .
     A. The value added by the various national industries to fuel elements
          exported to EFTA countries during the period 1972-82 varies from one
          firm to another from 5% to 25% .
          In the replies to the question : " what factors particularly limited
          the amount of this value ", the absence of indigenous raw materials
          is listed first and foremost . Other factors are also put forward :
          inadequate production capacity in the case of the conversion and
          enrichment services , supply of semi-finished products by the
          customers , a lack of adequate plans for fuel elements .
 ---pagebreak---                                     - 13 -
5 . Aa regards the maximum value which the fuel-cycle Industries can
    add to the fuel elements , the replies Indicate that 1t should attain
    50% if , 1n addition to fabrication , the enrichment service were
    also provided by Community industry . Without enrichment , however , the value
    added is on * average v onl y about 10% , if account 1s taken of the
    development in progress in the fabrication sector of certain
    Community firms which are not yet able to reach this value of 10% .
6 . As regards the effect on the added value that making use of the
     industries in other Community countries might have if the national
    industrial capacities were inadequate , certain industrial operators
    pointed out that such a possibility should not be considered on
    contractual grounds , since the fabrication and enrichment services
    are the subject of independent contracts .
7 . The average value that the industry in the EFTA countries can add
    at present to fuel elements is zero in the case of most of those
    countries in view of the lack of fuel-cycle installations . Only
    Sweden is in a position to contribute added value , which , however ,
    will not exceed 20% of the total value of the finished fuel element .
    Sweden 's fuel industry is limited to fabr1c*t1on .
                                                                                   « *
                                                                               Zo
 ---pagebreak---                               - 14 -
V. Comments by and positions of the Member States in relation to the
   problem of choosing rules of origin applicable in the Long term to
   nuclear fuel
   Introduction
   Trade between the EEC and EFTA countries is covered by free trade
   Agreements .
   The purpose of the rules of origin in the context of such trade is to
   ensure that the advantage of free trade between the EEC and EFTA
   countries goes to products manufactured in the countries signatory
   to the Agreements and not to products from other countries .
   The grounds for the 1972 decision to derogate from the basic rule of
   origin by suspending the 40 % value limit so as to bring nuclear fuel
   elements fabricated from imported enriched uranium within the scope
   of the preferences in EEC-EFTA trade were as follows :
   - the Community was an importer of uranium and of enrichment services ;
   - there were plans for enrichment plants in the Community, but it was
     impossible to foresee when the plans would become a reality and
     capable of providing enrichment services on a commercial basis .
   Since then the situation as regards natural uranium has not changed .
   The Community is not and will not be an exporter of natural uranium .
   In the conversion , enrichment and fabrication sectors , however , the
   Community industry as a whole has succeeded in establishing commer ¬
   cial production capacity that is adequate to meet internal needs
   beyond the 1990s . It has also been able to secure orders on external
   markets .
   Given this development of the Community industry it is now necessary
   to consider whether the existing derogation, which allows foreign
   competitors -notably from the United States- in the enrichment sector
   to participate in duty-free trade between the EEC and the EFTA
   countries , should be extended beyond its present expiry date at the
   end of 1988 .
 ---pagebreak---                            - 15 -
It is clear from Section III of the accompanying study that a return
to the basic rule of origin would be a severe blow to the Community
industry and must consequently be ruled out . This is because the
value of imported uranium amounts to some 40 % of the total ex-works
cost of the fuel element .
The study also shows , however , that reducing from 60 % to 50 % at
least the percentage of working or processing required where
products are imported from non-member countries would allow the
Community enrichment industry to derive full advantage from the
preferences in the context of EEC-EFTA trade .
On the other hand, such a move could entail the loss to the Community
industry of a market for the fabrication of fuel elements incorporating
foreign enrichment services which the Community enrichment industries
have not been able to win .   In such cases the fabrication industry
would have to pay customs duties on exports of fuel elements to the
EFTA countries on the basis of the full ex-works value of the product .
The replies to the questionnaire used for drawing up Section IV of
this report show that some industrialists are highly sceptical about
the possibility of combining both the enrichment and the fabrication
operations required in order to attain the processing threshold of at
least 50 % within the Community .
It is their view that this possibility must be ruled out for
contractual reasons , since fabrication and enrichment are the subject
of separate contracts which , furthermore , are spread over considerable
periods and are concluded for differing delivery periods ( see Section
II ).
Comments by and positions of the Member States in relation to the
problem under consideration
At the meeting of the Committee on Origin in Brussels from 17 to 21
February 1986 the representatives of the Member States of the
Community had the opportunity to comment on the analysis of the
problem set out in the foregoing sections .
Some delegations subsequently followed up the chairman 's invitation
to send written statements regarding their views on the choice of
rules of origin applicable in the long term to nuclear fuel .
                                                                     it.
 ---pagebreak---                             16 -
The analysis of the question by the Commission representative
responsible for this paper , summarized in the introduction to
this section , did not give rise to any substantive comment by
the national delegations .
The views expressed by the Member States' representatives concerning
the choice of rules of origin applicable in the long term were
varied .
The French delegation was in favour of a permanent solution , through
abolition of the existing derogation and its replacement by a
reduction to 50 % of the percentage in the basic rule . Since the
Community enrichment industry has reached a stage of commercial
maturity sufficient to allow it to offer enrichment services on the
international market at competitive rates , the French delegation
considered there was no reason why the present arrangements should
be maintained . This attitude was subsequently confirmed in writing
by the relevant customs and indirect taxation department , which
stated that it was opposed to maintaining the existing derogation
and was in favour of a return to the added value rule set out in
List A , though with the threshold reduced from 60 % to 50 % .
It was felt that value added in the Community usually accounted
for over 60 % of the cost of the fuel elements obtained but that
consideration must also be given to cases where imported material
had already been subject to some processing and in consequence the
60 % limit might be unattainable; in order to take this possibility
into account , a reduced added value rate of 50 % seemed reasonable .
The United Kingdom delegation , on the other hand , considered that
the existing derogation should be renewed for the following reasons :
- the advantage to be derived by the Community enrichment industry
  from a return to the basic rule of origin , even as amended in
  accordance with the French position , would be only marginal ; this
  was because few electricity producers ( EEC and EFTA ) would be
  affected by the measure , since most of them had already made
  arrangements with Community suppliers covering all or at least
  part of their enrichment services requirements ;
- the volume of sales of nuclear fuel elements by the Community
  fabrication industry to customers from EFTA countries was greater
  than vice versa ; if the fuel were to incorporate non-Community
  enrichment services , the Community fabrication industry would be
  penalized by any customs duties payable .
 ---pagebreak---                             17 -
- a return to the basic rule would prevent any sale of fuel elements
  fabricated by the EFTA countries to the Community except in cases
  where the fuel contained in the elements had previously been both
  converted and enriched in the Community; consequently, the question
  of a return to the basic rule of origin should be considered in the
  wider context of the Community 's commercial policy towards EFTA .
The German delegation was also in favour of renewing the derogation
due to expire on 31 December 1988 . In addition , it was concerned
about the policy of constant renewal of the derogation that had been
followed in the past . This practice was discriminatory in so far as
it placed potential EFTA country customers for fuel elements in a
position of uncertainty regarding the future policy to be followed
by the Community when the derogation expired . This uncertainty
affected invitations to tender issued shortly before expiry of the
derogation and running beyond that date .
Consequently , the German delegation wondered whether the present
arrangements , i.e. the simple abolition of a percentage limit in the
basic rule in relation to the added value provided for in List A ,
should not be adopted as a permanent solution to the matter .
The German delegation supported the main points put forward by the
United Kingdom delegation . It stated also that the French position
did not take account of fundamental principles governing service
contracts relating to the nuclear fuel cycle .
It pointed out again that such services were generally the subject
of separate contracts spread over periods of time and concluded
between different firms which were unconnected with each other .
Hence it would be difficult - if not impossible- for the Community
industry to secure at the same time the contracts for both fabri ¬
cation and enrichment so as to attain the rate of 50 % of value
added .
The Italian and Belgian delegations supported the position expressed
by the United Kingdom and German delegations .
The Dutch delegation did not adopt a specific position , but said
that it was included to favour renewal of the derogation .
The Irish and Danish delegations , not having any specific interests
in this field, said that they would accept any reasonable solution .
                                                                     /
 ---pagebreak---                                                                          Member State :
  Questionnaire concerning a detailed impact study of the economic
          consequences of the choice of origin rules applicable in
                                      the long term
 I . _Si_tU£t_i_o£ anci _i_m£o_rt£nce__ojf .trade between _th£ _va_ri£U£ £e£b£r_c£un tr i£S
     £f_t_he_E_£C_a£d_t_ho£e_ojf EFTA_i£ £0£-_i_r£a_dia_t£d_n£c_l_e_ar_f£e_l_ _elemerrts_
       ( value of the finished product )
      1 . Value of fuel elements exported from the Member State to an EFTA
           country in the period 1972-82 ?
      2 . Proportion of this market in relation to the total value of fuel
           elements manufactured in the Member State ?
      3 . Forecasts for the trend of the data under 1 and 2 above from now
           until 1988 ( date of expiry of the derogation ) ?
      4 . Value of fuel elements imported into the Member State from EFTA
           countries in the period 1972-82 ?
      5 . Forecasts for the trend of the data under point 4 from now until
           1988 ?
II . _Situatjpn a_nd £r£S£e_c_ts_ _f o_r _the .trend £f_t h_e_v£l£e_wh_i_c h_C£m_mun i t_y_
     J_nd_u_st_r_y_ca_n_p_ro_vi_de_a_s _i_n£u_t _to_t_h_e_n£c_^ea_r_f£e_l_ _e l_em£nt_ _sector_
      1 . Average value in percentage terms of the input by national
           industry to fuel elements exported to EFTA countries during the
           period 1972-82 ?
      2 . Factors which have particularly limited the amount of this value
           in the past (absence of national enrichment or conversion industry,
           etc .; absence of indigenous raw material ; supply of semi-finished
           products provided by the customer himself ; other factors ).
 ---pagebreak---       3 . Any improving trend that has developed in the past as far as concerns
          the amount of this value and reasons for this development ?
      4 . Maximum value ( in percentage terms ) which national industry could
          provide as input to fuel elements at present according to existing
          capacity and forecasts for possible change from now until 1988 in
          this value , with a statement of the basic hypotheses for the latter ?
      5 . Impact on the value under point 4 of possible recourse to Community
          industry in the event of insufficient indigenous industrial capacity ?
      6 . Average value ( in percentage terms ) which the various EFTA countries
          could provide as input from their own resources to fuel elements in
          the future ( estimate for the period from now until 1988 ).
III . Ot£e_r £0£s_i_b_l_e_f£cjt^o£S_ £_ £r_c£mment s_,_re_l at_in£ to_th e_p_rob l em_of thje
      choice of origin rules applicable in the long term in the fie_ld_of
      nuclear fuel