This record is a partial extract of the original cable. The full text of the original cable is not available.

S E C R E T SECTION 01 OF 03 CANBERRA 000432 
 
SIPDIS 
 
STATE FOR EAP/C, EAP/ANP, NP/MNA, NP/NE 
 
E.O. 12958: DECL: 03/04/2015 
TAGS: PARM ENRG KNNP PREL ETTC MNUC AS CH
SUBJECT: DISCUSSIONS BEGIN FOR CHINA TO BUY AUSTRALIAN 
URANIUM 
 
REF: BURKART-FITZGERALD 2/19 E-MAIL 
 
Classified By: POLCOUNS WOO LEE FOR REASONS 1.4 (B AND D). 
 
¶1.  (C) SUMMARY: John Carlson, Director General of the 
Australian Safeguards and Nonproliferation Office (ASNO), 
told us his late-February trip to Beijing to begin 
exploratory discussions on an "agreement for cooperation" on 
uranium sales to China went well overall.  He described his 
interactions with the Chinese as friendly and positive as PRC 
officials agreed to all but one of the GOA's standard 
"safeguards" requirements for uranium transfers.  Beijing's 
one objection was to the condition that China place its 
nuclear energy facilities where Australian uranium was 
located under "voluntary offer" to the IAEA.  Chinese 
officials argued that doing so in a Nuclear Weapons State 
(NWS) was a waste of IAEA time and money.  Nonetheless, 
Carlson was confident that the PRC could eventually be 
persuaded to do so, and he intended to draw French 
counterparts into the discussions with China so they could 
describe France's method for placing certain facilities under 
voluntary offer as required by its bilateral agreements with 
supplier nations.  Carlson also provided an analysis of 
future Chinese energy needs and capacity.  He said the 
Chinese had subtly indicated they were not producing 
weapons-grade fissile material.  He also gave us details of 
PRC R&D efforts with South Africa to manufacture pebble-bed 
nuclear energy reactors and said Australia might be 
interested in importing them someday.  END SUMMARY. 
 
¶2.  (C) ASNO DG John Carlson gave us a readout of his 
February 19 - 24 trip to Beijing to begin exploratory talks 
on a bilateral cooperation agreement that would enable China 
to purchase uranium from Australia under a long-term contract 
for its nuclear power reactors.  Carlson characterized the 
discussions as friendly and positive, with Chinese officials 
raising only one "philosophical objection" to the standard 
safeguards-type terms that the GOA required in all of its 
uranium export agreements. 
 
TERMS OF AGREEMENT: WHAT CHINA FOUND ACCEPTABLE 
--------------------------------------------- -- 
 
¶3.  (C) Carlson said the text of the Australian-proposed 
"agreement for cooperation" was very similar in substance to 
the GOA's agreement with the U.S., and was considered a 
standard model for agreements with a Nuclear Weapons State 
(NWS).  The Chinese had no problem agreeing to a "no military 
use" clause, which Carlson said specifically excluded the 
right to produce tritium.  PRC officials also had no 
difficulty agreeing to Australian consent rights for all 
retransfers; prohibition of any alteration in form or content 
(in other words, no enrichment above 20 percent U-235); and 
Australian "catch-all" controls on all related uranium 
technology or equipment transfers.  The Chinese asked Carlson 
for a clause providing prior consent for reprocessing at a 
civilian reprocessing plant they hoped to have built by 2020. 
 Carlson, however, found the Chinese plans too vague and 
proposed instead drafting a side letter that would 
"sympathetically view" Chinese requests for reprocessing on a 
case-by-case basis, which seeme 
d to satisfy his interlocutors. 
 
WHAT CHINA FOUND PROBLEMATIC: IAEA VOLUNTARY OFFER 
--------------------------------------------- ----- 
 
¶4.  (C) Carlson said Chinese officials were initially not 
comfortable with the GOA "bottom-line" requirement to place 
all facilities where Australian uranium was housed on the 
IAEA's "voluntary offer" eligibility list.  He explained to 
the Chinese that it was routine for NWS to do so; all U.S. 
civilian nuclear energy facilities were on voluntary offer to 
the IAEA and, while the IAEA seldom conducted inspections in 
NWS, placing their facilities on the eligibility list 
"conveyed a commitment to nonproliferation" to the 
international community.  The Chinese tried to argue that it 
would be a waste of IAEA resources to inspect facilities in 
an NWS.  Carlson countered that the UK, Russia, and France 
had listed many of their nuclear energy facilities.  In one 
instance, Russia had taken the initiative to put a particular 
centrifuge enrichment plant on voluntary offer, presumably 
because it wanted to build confidence in the technology to 
foster future exports.  Carlson reassured the Chinese that 
IAEA involvement through the voluntary offer would have to be 
done in accordance with China's safeguards agreement with the 
IAEA.  He also explained the somewhat complicated French 
scheme for listing and de-listing facilities as 
foreign-procured uranium was used in them and offered to hold 
a trilateral follow-up meeting with France to discuss this 
option in-depth during the next Standing Advisory Group for 
Safeguards Implementation (SAGSI) meeting in Vienna in June. 
 
¶5.  (C) Carlson was optimistic that the Chinese would 
eventually come around on voluntary offer for facilities 
using Australian uranium.  He noted that China had already 
placed Canadian, French and German-procured or licensed 
reactors on IAEA voluntary offer.  Two Chinese-manufactured 
reactors at Qinshan were also on voluntary offer, and 
Carlson's interlocutors even suggested that it might be 
useful to have the IAEA inspect these reactors because China 
wanted to export this kind of reactor to Pakistan.  Carlson 
emphasized to the Chinese that there could be no exception 
for China to standard practice on voluntary offer, and the 
PRC officials appeared to understand this.  The GOA had 19 
bilateral agreements for uranium sales or transfers, and 
Carlson pointed out to his hosts that the one for China would 
receive particularly close public scrutiny. 
 
CHINA'S ENERGY NEEDS AND LIMITS TO AUSTRALIAN EXPORTS 
--------------------------------------------- -------- 
 
¶6.  (S) Even if Australia and China do reach an agreement, 
Carlson's analysis of China's future energy needs and 
Australian export capacity appeared to indicate that there 
would be limits to cooperation.  Carlson noted that nuclear 
energy only accounted for two percent of China's current 
energy production.  According to a briefing he received from 
the Chinese National Development and Reform Commission, 
Carlson said, the PRC wanted to increase the nuclear energy 
share of total energy production capacity to four percent by 
¶2020.  Over the same period, however, China's current 440 
gigawatts of total energy capacity would more than double to 
950 gigawatts, meaning that to double nuclear energy capacity 
to four percent would actually require a four-fold increase. 
(Carlson predicted that coal usage would also double by 2020, 
which meant that even a fourfold increase in nuclear energy 
would still "not provide any appreciable Kyoto Treaty 
greenhouse gas reduction benefits.") 
 
¶7.  (S) It was Carlson's understanding that China only had 
70,000 tons of low-grade uranium left to mine in its own 
territory and would need to import 8,000 tons per year in a 
stable, long-term contract to meet projected needs.  This 
would comprise a full 80% of Australia's current annual 
export of 10,000 tons per year.  He said the Chinese 
expressed interest in uranium exploration in Australia, which 
had the world's largest uranium deposits.  Carlson had to 
explain to his hosts the "difficult politics of Australian 
Labor Party-led governments" that control all of Australia's 
states and territories and continue to block the development 
of additional uranium mines in their relevant jurisdictions. 
 
PRC INDICATES NO PRODUCTION OF FISSILE MATERIAL 
--------------------------------------------- -- 
 
¶8.  (S) Carlson also asked the Chinese whether they were 
still engaged in weapons-grade fissile material production. 
He said he found the answer he got "a bit coy."  The 
officials told him that the PRC wanted negotiations on a 
Fissile Material Cutoff Treaty (FMCT) to begin as soon as 
possible, and he should infer from that that China was not 
producing such fissile material.  Carlson told us he did not 
believe Beijing was engaged in producing highly enriched 
uranium for weapons, in part because he estimated that China 
already possessed some two to six tons of weapons-grade 
plutonium, which ought to be sufficient for its nuclear 
weapons plans. 
 
NEXT STEPS: NO HURRY 
-------------------- 
 
¶9.  (C) Carlson's next move was to complete a consolidated 
revision to the draft text based on Chinese "fine-tuning," 
but he was not sure of the timeframe for future negotiations, 
noting that neither side had a formal negotiations mandate. 
He did expect that there would be another round of talks in 
Canberra before trilateral talks in Vienna with French 
officials in June.  Carlson did not sense that the Chinese 
were in a great hurry. 
 
BEIJING TO BUILD SOUTH AFRICAN REACTORS FOR EXPORT? 
--------------------------------------------- ------ 
 
¶10.  (C) Carlson said he had learned that China had concluded 
a research and development agreement with South Africa for 
joint development of pebble-bed nuclear reactors, even though 
China considered the technology unproven.  He understood that 
South Africa was more optimistic that the reactors would be 
commercially licensable early in the next decade.  South 
Africa would build the prototype, but the expectation was 
that China would actually manufacture the pebble-bed reactors 
for export under South African license.  According to 
Carlson, the GOA's envisioned bilateral nuclear cooperation 
agreement with China would be broad enough to cover all 
eventualities, so that Australia might some day import such 
reactors from the PRC.  (NOTE: This assumes, of course, that 
the ALP, Greens and the Australian general public drop their 
opposition to nuclear energy in the meantime.  End note.) 
STANTON