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  The Commission of the European Communities categorically rejects the
  allegations, published recently by certain sections of the press, that
  its departments, including the Euratom Supply Agency and the Euratom
  Safeguards Directorate, have allowed nuclear materials to change hands
  either illegally or in violation of the agreements that Euratom has
  concluded with supplier countries such as Australia, Canada and the
  United States.
  Background
  ----------
  1.    "Flagswapping" is not a secret or illegal practice : it is
  compatible with the bilateral agreements that Euratom has concluded
  with Australia, Canada and the United States.  The prior agreement of
  these third countries is required only in respect of "flagswaps"
  involving nuclear materials outside the Community.
  The US therefore recognizes that both internal and international
  flagswaps are implicitly permitted under the Euratom-US agreement.
  The Euratom-Australia agreement permits internal flagswaps in an
  arrangement that covers all aspects of the management of the agreement
  and expressly accepts the principle of equivalence, and thus of
  interchangeability, of nuclear materials.  Australia has not, however,
  so far accepted international flagswaps, and therefore no such
  operations have been carried out.  The Euratom-Canada agreement
  provides for both internal and international flagswaps.
  These operations are also, from a legal standpoint, legitimate in
  international law.  The International Atomic Energy Agency (IAEA) in
  vienna expressly permits "swaps" between nuclear materials, whether or
  not subject to its safeguards, in all its agreements with States that
  are not signatories to the Non-Proliferation Treaty (NPT) but are
  subject to sectoral IAEA safeguards.  The problem of swaps cannot
  arise in agreements between the IAEA and States that are signatories
  to the NPT, which are subject to full-scope safeguards.
                                                               ./..
                                    - 2 -
  2.    Flagswaps can be explained and justified above all for economic
  and security reasons.  A simple example to illustrate a swap :
        In the Community, an operator, e.g. manufacturer of fuel
        elements for nuclear power stations, has 80% Canadian uranium
        and 20% Australian uranium, these being required for the
        manufacture of the elements.
        As he needs the full quantity, but this is subject to the
        safeguards obligations of two different countries (Canada and
        Australia), the situation can be complicated for the end-user :
        the latter has to keep complex accounts when managing his fuel
        and runs the risk of his spent fuel being refused by the
        reprocessing plant on account of its dual origin.
        The operator therefore wishes to have it officially certified,
        by Euratom, that the full quantity of uranium he requires is
        from the same "origin".  This is when the swap takes place.
        Operator "A" approaches a second operator, "B", in the
        Community, who accepts that "A"'s 20% uranium of Australian
        origin should be relabelled as being "of Canadian origin" and
        that, in exchange, 20% of the Canadian uranium in his possession
        should become "Australian".
  In general, this practice is justified not only for economic reasons
  (risk of production delay, etc.), but also for security reasons.  The
  swap makes it possible to avoid having physically to transfer nuclear
  material from one location in the Community to another.
  3.    The various arguments and allegations that appeared in a major
  German weekly regarding the illegality of some of these swapping
  operations, claiming in particular that Euratom was circumventing an
  embargo on South Africa and organizing unauthorized operations with
  the Soviet Union, are without foundation.  It must be pointed out that
  the European Community as such has not put an embargo on uranium
  imports from South Africa.
  The US did not have an embargo on uranium from South Africa until 31
  December 1986.  The issue of the US embargo on uranium from South
  Africa and Namibia is, moreover, a highly complex one :
  -     from 1 January 1987 to 2 July 1987, it was permissible to import
        South African uranium in certain forms into the US for
        processing on behalf of a non-American user and, in other forms,
        for all users;
  -     from 2 July 1987, the importation of uranium in a certain form
        into the US has been officially prohibited but for the time
        being it is still perfectly legal, under a US Treasury
        regulation, to import uranium mined in South Africa and
        converted in another country.  The regulation states that, in
        such operations, the country of origin of the materials becomes
        that of the country in which conversion took place.
                                                           ./..
                                      - 3 -
  As far as operations with the Soviet Union are concerned, the claim
  that uranium under US safeguards has been sent to that country is
  false.  Under its present policy, the US is not prepared to authorize
  the Community to make such exports and, for their part, the Community
  authorities make sure that such exports do not take place.
  Uranium subject to Canadian and Australian safeguards, on the other
  hand, may be exported to the Soviet Union with the agreement of the
  Canadian and Australian authorities and provided that all the uranium
  enriched in the Soviet Union and the waste from the operation are
  fully recovered.
  Here, too, the Community authorities check both the authorizations and
  the re-imports.
  Generally speaking, and provided the Community is fully informed of
  Soviet policy in this field, the Soviet embargo on imports of uranium
  from South Africa is not total : in particular, materials covered by
  old contracts may be imported into the Soviet Union without breaking
  the embargo.
  4.    Lastly, the main point in this matter concerns the
  "interchangeability" of nuclear materials.  It is quite obvious that,
  for example, in the case of enriched uranium it is impossible to
  identify the origin of the various atoms that make up the final
  product.
  The crucial point is therefore not the origin of the uranium, but the
  application of the physical and accounting checks that make it
  possible to trace the quantities and qualities of products obtained
  from the uranium ore.
   
   

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