Europe, US in New Trade Dispute over Uranium

The U.S. Department of Commerce imposed tariffs on European producers of low enriched uranium (LEU) earlier this year, claiming the Europeans received unfair state subsidies.

After months of talks with the United States, the European Commission has condemned the duties as "illegal" and is seeking to refer the case to the World Trade Organisation.

Europe prepares for action as discussions fail

With no amicable solution in sight, the spokeswoman for EU Trade Commissioner Pascal Lamy told the BBC, "We are not going to sit and wait."

"We will send our final consultation documentation to our member states in the next couple of weeks and do not expect any obstacles."

The European Commission values LEU exports at 506.8 million euro ($500m) - or one third of the U.S. market

The current dispute over uranium follows spats between the U.S. and Europe over corporate tax breaks and trade in steel, bananas and beef.

Two years ago, the U.S. Enrichment Corporation (USEC), the only enricher of uranium in the United States, lodged a complaint against the French government's Eurodif and Urenco, a British-Dutch-German government consortium, complaining of unfair subsidies.

This was followed by an investigation by the International Trade Commission (ITC), which recommended the imposition of duties. The subsequent report stated that 'subsidised' European LEU was harming the domestic industry in the United States.

Threat to U.S. industry prompted extra duties for Europe

As a result, Eurodif now pays an extra 34 per cent duty, and Urenco 2.23 per cent, on exports to the U.S. The European Commission estimates USEC will receive about 101.3 million euro ($100m) in extra annual income from the duties.

Urenco disputes the findings and plans to appeal to the U.S. Court of International Trade.

The ITC also found state-owned power company Electricite de France (EdF) had bought Eurodif's uranium at about 13 per cent above market prices, and that the proceeds were then used to bankroll the sale of uranium in the United States at 19.5 per cent below USEC prices.

USEC has a monopoly on uranium enrichment in America and is the world's leading supplier of fuel to nuclear power plants. The company is also the only middleman for recycling weapons grade material from decommissioned Russian nuclear warheads. The U.S. government hopes the deal will keep the material out of terrorist hands.

Urenco plans to break up USEC monopoly in America

However, USEC could soon face domestic competition from Urenco, which reputedly produces the cheapest enriched uranium in the world, has the newest technology and is expanding capacity rapidly.

It is part of a consortium that plans to build a 1.1 billion euro ($1.1bn) uranium processing plant in the U.S., the first since the 1980s, which would break USEC's monopoly.

The output from the plant, which could be operational by 2007, would not be subject to duties and would be significantly cheaper to operate.