An increasingly globalized market for nuclear power components, reactor fuel and services is expanding as nations seek to modernize existing power stations and construct new nuclear energy facilities. With zero carbon emissions and high energy output, nuclear power's appeal drives overseas demand for U.S. nuclear equipment, including technology and software, as well as professional services and operating experience. However, tapping the global nuclear market poses complex regulatory hurdles for U.S. vendors and investors, given stringent U.S. non-proliferation regulations and export controls.
In this Q&A, Pillsbury International Trade attorney Sanjay Mullick and Energy attorney Elina Teplinsky explain unique challenges facing the nuclear industry in a globalized world. Experienced advisors to energy, technology and other businesses subject to rigorous export controls, they explain why nuclear demand is growing overseas and handing U.S. businesses a mix of opportunities and challenges.
Q. What drives more nations' interest in nuclear power today?
Mullick: Nuclear power is gaining more interest as a reliable and proven means to the "post-carbon" future, or national energy portfolios that do not rely entirely on fossil fuels. Many industrialized nations view nuclear power as a reliable complement to solar, wind and other renewable sources. At the same time, smaller and developing nations believe nuclear power provides a promising approach to helping them obtain electricity considered essential for sustaining their growing economies. In both cases, the mature vendor base of nuclear supplies and know-how is also a contributing factor, as the equipment and support services already exist.
Q. Which countries are seeking nuclear power, and what kinds of market opportunities do they present?
Teplinsky: Approximately 30 countries currently seek to acquire or expand nuclear plants, in accordance with internationally-recognized non-proliferation measures. These include China, the United Arab Emirates, Jordan and Vietnam. In addition, India has signed a landmark civilian nuclear power cooperation agreement with the U.S., which is on the verge of reestablishing nuclear trade between the two countries after decades of sanctions. India is a good example of the breadth of trade opportunities emerging overseas. India's nuclear expansion and modernization require not only nuclear equipment, but also considerable construction services, telecommunications and control system upgrades and software installations, in addition to operating know-how required to keep Indian nuclear plants running over time and optimize their performance. Internationally, there are opportunities for design experts, consultants, IT providers and financiers, among others.
Q. How readily can U.S. businesses and investors pursue these opportunities?
Mullick: While regulatory shifts and international agreements are unlocking new markets, international trade rules still pose daunting compliance challenges for the industry, both home and abroad. Reconciling emerging markets and the realities of international business with export controls is complicated, with much at stake. For example, one of the last remaining items to be resolved before full implementation of the U.S.-India nuclear agreement concerns assurances around the transfer of U.S. technology.
Trade in nuclear goods and services is among the most heavily regulated in the world, particularly for entities subject to U.S. export controls, which includes both U.S. businesses and also non-U.S. companies if they trade in, or have access to, U.S. origin products or technology. Because applicable laws were written with non-proliferation in mind, they place significant "checkpoints" in front of sales and must be navigated carefully and knowledgeably. Where licenses are required, approval generally depends on a combination of factors, including the nature of the technology, the nationalities of interested buyers, their projects' locations, and whether a proposed transaction and its purpose conforms to recognized U.S. and international non-proliferation measures. Compliance is a particularly serious matter because violations can trigger base fines in the six figures and can also result in the withholding of the authorizations that are essential to engaging in global nuclear trade.
Q. Are tougher export compliance and due diligence requirements limited to international sales?
Mullick: Export controls also have increasingly far-reaching effects within the U.S., because working with a globalized talent pool tests companies' regulatory compliance. Under export control rules, in addition to traditional exports such as the physical sending of a good overseas, it is equally important to be mindful of intangible transfers, such as "deemed exports," where foreign nationals within the United States could gain access to technology.
For example, hiring a foreign national, or simply hosting a foreign delegation at your facility, office or nuclear plant could constitute a deemed export, if businesses knowingly or even inadvertently grant access to technical information through conversation or otherwise share controlled data and specifications. These scenarios can raise significant export control issues, even if nothing actually leaves U.S. soil.
This gets at the heart of a crucial issue: trying to map boundaries and borders on businesses at a time when technology and trade are blurring the lines. You have to watch not only "what" leaves the building, but also "how" it leaves and "who" really comprises the enterprise. For example, corporate IT systems can be a large source of export control violations if proper access restrictions are not put in place.
Q. How does the nuclear industry need to adapt in light of these changes?
Teplinsky: One important area relates to personnel management, where companies have to revamp procedures in recognition of today's international workforce. Everyone working in facilities hosting nuclear-related information and materials needs to have the proper clearances - from executives and engineers to maintenance workers, or IT professionals. Some businesses outsource these roles, but are still held accountable for violations, so it remains important to ensure contractors have clearances to work on-site.
In the past, there was a significant U.S. pool of nuclear-skilled employees; they were almost exclusively citizens by birth and trained domestically, usually through Navy service or American universities' nuclear degree programs. Today, in stark contrast, there are more nuclear education centers worldwide turning out graduates seeking highly-regarded U.S. industry experience. Meanwhile, with American interest in nuclear power only recently reviving, the country's nuclear workforce reinvestments have not kept up. Today there are relatively fewer degree programs and a smaller domestic labor force to match the industry's renaissance.
As a result, companies frequently trigger export control issues when utilizing available talent. Understandably, globalization necessitates the reworking of companies' compliance procedures. For example, while U.S. companies' corporate screening processes might check if someone is legally eligible to work in the U.S., simply having a work visa does not permit someone to access export-controlled items and information. Similarly, non-U.S. companies need to keep track of products and technology they receive that are of U.S. origin because U.S. export controls will travel with those items and continue to apply, even outside the United States.
Q. What do you recommend the nuclear industry's members and partners consider as they take on more international opportunities and regulatory pressures?
Mullick: Internally, it helps to view compliance as part of a company's regular activities, not as an isolated function. Companies need to reinforce compliance across all their business functions, such as HR, IT, sales and facilities, to make sure that activities prone to violations – foreign travel, hiring and background screening, computer network access – are uniformly addressed and accounted for. We regularly work with companies to examine and develop their export compliance programs.
Teplinsky: There are a number of factors U.S. suppliers and financers need to consider when scouting overseas markets to assess regulatory issues, before seeking approval for transactions. Which countries are involved, and what are the parties' nationalities, including those who may serve as systems integrators and consultants? Finally, it is important to determine whether an overseas customer intends to re-sell U.S. technology or knowledge to a third party, which might be prohibited, or require further approvals. Under U.S. export controls, such re-transfers may be considered "re-exports" requiring authorization in some cases, even if the reseller and subsequent customers reside in the same country.