INDUSTRY NEWS: NOVEMBER 2005

By Robert M. Hausman

U.S. State Dept. Rescinds U.S. Goods Policy Policy change affects Curios & Relics

The U.S. Department of State has changed its policy of “presumptive denial” of requests to retransfer U.S. military goods that are defined as Curios and Relics to a policy of approval on a case-by-case basis. The policy change became effective in late June and means that firearms enthusiasts should begin to see a greater variety of historic military-origin firearms available on the market in coming months.

The first step in the importation of such goods is to have the foreign government or other owner of the goods request retransfer permission from the U.S. State Dept., Bureau of Political Military Affairs, Office of Regional Security and Arms Transfers (PMA/RSAT).

In cases where the foreign entity originally purchased the goods, the State Dept. will evaluate the request and render a decision. In cases where the goods were provided under a foreign aid program, the State Dept. has limited authority to waive the requirement that net proceeds from the sale must be repatriated to the U.S. government. Each arms transfer request and third party transfer submitted to the PM/RSAT for approval will undergo a legal review to ensure it meets the requirements demanded by the Foreign Assistance Act and the Arms Export Control Act.

The State Dept. first made the announcement of the policy change at the 2004 ATF and the Imports Community conference held outside Washington, D.C. The policy at that time was said to be complete and ready for authorization, although no execution date had been given. It was thought at the time, that the new policy would go into effect by late August or early September of last year. Why it has taken so long is not known.

U.S. Origin Goods Import Procedures

In line with the change in policy on U.S. origin curios and relics, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) on July 12th, issued an open letter to the importing business community detailing the Dept. of State’s policy changes and stating that the procedures ATF will use to process such applications will not change.

The open letter, signed by Audrey Stucko, Chief, ATF Firearms and Explosives Services Division, notes that ATF was advised by the Dept, of State that its Bureau of Political Military Affairs will now, on a case-by-case basis, permit the retransfer of U.S. manufactured military firearms that were sold or granted by the United States government and that are classified by ATF as curio and relic firearms to U.S. private entities under the following conditions:

• ATF has determined that such firearms are curios or relics and are importable for commercial resale under the National Firearms Act, Gun Control Act, and the Arms Export Control Act;
• The foreign government to which the U.S. government had furnished the firearms certifies to the U.S. government that it owns such firearms;
• The Dept. of Justice, ATF, Federal Bureau of Investigation, Dept. of Homeland Security, Bureau of Political Military Affairs/Directorate of Defense Trade Controls, etc., have no derogatory information regarding the entity;
• ATF and relevant domestic agencies do not object to particular imports, subject to such provisos as they may require, to assist them in any related monitoring or law enforcement efforts;
• Title will not transfer until such items are in the customs jurisdiction of the United States; and
• Importers provide appropriate end-use and retransfer assurances related to the importation of such items.

Prospective importers of U.S. manufactured military firearms should note that the above policy changes implemented by the Dept. of State will not affect how ATF processes applications for permits to import such firearms. Applicants for permits to import U.S. manufactured military firearms, among other things, must:

• Attach to their permit application written retransfer authorization for such firearms from the Dept. of State. Applications without written retransfer authorization will be denied.
• Seek the importation of only those U.S. manufactured military firearms determined by ATF to be curio or relic firearms (27 CFR § 478.11).
• With respect to handguns, seek the importation of only those handguns that are of a type that is generally recognized as particularly suitable for or readily adaptable to sporting purposes per 18 U.S.C. 925(d)(3).
• Seek the importation of only those U.S. manufactured military firearms that are assembled in their original military configuration.

ATF notes that properly filed import applications for U.S. manufactured surplus military firearms classified as curios or relics do not require submission of a law enforcement purchase order, pursuant to 18 U.S.C. 925(e). As such, ATF Ruling 80-8 will be modified in part in the near future to reflect that purchase orders are not required for these specific items.

Questions related to the policy changes implemented by the Dept. of State should be directed to the Bureau of Political Military Affairs, Regional Security and Arms Transfer Policy office at (202) 647-9750. Questions concerning import permit applications and requirements should be directed to ATF’s Firearms and Explosives Imports Branch at (202) 927-8320.

ATF to Prohibit Importation of Certain Gun Parts

In a July 13th dated open letter to licensed importers, the Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) has determined it will no longer approve import applications for frames, receivers and barrels for firearms that are not importable and would be prohibited to be possessed if assembled from imported parts. During the last several years, ATF had approved such imports for the purposes of “repair or replacement” of existing firearms.

ATF is basing its decision on Title 18 U.S.C. § 925(d)(3) which spells out rules for the Importation of Frames, Receivers or Barrels of Firearms.

In explanation, Section 925(d) provides standards for the importation of firearms and ammunition into the United States. In particular, section 925(d)(3) provides that the Attorney General shall authorize a firearm to be imported if it meets several conditions: (1) it is not defined as a firearm under the National Firearms Act (NFA); (2) it is generally recognized as particularly suitable for or readily adaptable to sporting purposes; and (3) it is not a surplus military firearm. However, the subsection further provides that “in any case where the Attorney General has not authorized the importation of the firearm pursuant to this paragraph, it shall be unlawful to import any frame, receiver, or barrel of such firearm which would be prohibited if assembled.”

ATF says it has determined that the language of 18 U.S.C. § 925(d)(3) permits no exceptions that would allow frames, receivers or barrels for otherwise non-importable firearms to be imported into the United States. Accordingly, ATF will no longer approve ATF Form 6 applications for importation of any frames, receivers, or barrels for firearms that would be prohibited from importation if assembled. No exceptions to the statutory language, for example, for “repair or replacement” of existing firearms, will be allowed.

ATF notes it recognizes that importers have, in the past, obtained import permits authorizing the importation of barrels and receivers for non-importable firearms for “repair or replacement” and may have entered into contracts in reliance upon such authorizations. In order to mitigate the impact of ATF’s change in import policy and to allow importers a reasonable period to come into compliance, ATF said it will forgo enforcement of this import restriction for 60 calendar days and allow importers holding existing permits to continue to import barrels and receivers for a period of 60 calendar days counting from July 10, 2005.

ATF said it believes this time period is adequate for importers who have entered into binding contracts for the sale and shipment of such barrels and receivers to complete the process of importing the items into the United States. ATF will advise Customs and Border Protection that in no event should these permits be accepted to release these items for entry into the United States after September 10, 2005.

Importers are reminded that ATF previously approved permits for non-importable barrels and receivers for repair or replacement only, and this restriction was stamped on the face of the permit. Importers who imported such components for any purpose other than repair or replacement of existing firearms, e.g., for assembly into new firearms, will be considered by ATF to be exceeding the scope of the import authorization in violation of law. If ATF determines, through inspection or otherwise, that an importer willfully violates the import provisions of the Gun Control Act, the importer’s license is subject to revocation pursuant to 18 U.S.C. § 923(e).

Importers holding approved import permits for non-importable barrels and receivers should have received a letter prior to September 10, 2005, advising them that their permit has been suspended.

Specifically, this determination affects importers as follows:

1. If a new application is submitted to ATF to import frames, receiver or barrels on or after July 13, 2005, and the permit is for non-sporting firearms, surplus military firearms or National Firearms Act firearms, ATF will deny the application.
2. For importers who have submitted an application to import frames, receivers and barrels that has not yet been denied or approved by ATF and the permit is for non-sporting firearms, surplus military firearms or National Firearms Act firearms, ATF will deny your application.
3. For importers who already hold an approved permit to import frames, receivers and barrels “for repair or replacement,” ATF should have sent a letter explaining that the permit will be suspended after September 10, 2005, and providing information regarding the right to submit arguments why your permit should not be revoked.

The letter was signed by Lewis P. Raden, assistant director, Enforcement Programs and Services Division of ATF.

Industry Segments Affected

The government’s move will have its greatest impact on the importation and sale of “machine gun kits” as such guns are not importable if fully assembled. The price of such kits, containing an imported barrel, will surely climb in value in the short term. It is likely that domestic production of barrels for such kits will be undertaken if consumer demand warrants it, however the cost of tooling up and producing the barrels domestically will add significantly to the selling price of such kits.

The source of supply for replacement barrels for owners of legally registered full-auto foreign origin firearms will soon dry up, and the production of the semi-auto AK-, UZI, and other variants of military origin firearms (such as the WASR-10) by a number of domestic producers (which are presently in abundance on the American market) will likely be severely affected as well until a domestic source for barrels is established.

During the annual “ATF & the Imports Community” conference and workshop in Washington, D.C. in late July, it was mentioned that ATF had not yet fully determined how their new stance on Section 925(d)(3) will affect a large number of firearms models. It was mentioned that ATF was planning to do a complete review of exactly which firearms models would be affected by the ban on importation of barrels, frames and receivers. ATF’s determination, when reached, will be reported in SAR.

F.A.I.R. Responds to ATF on Import Ban

In a July 22nd dated letter signed by Charles Steen, president of the F.A.I.R. Trade Group, importers responded to the decision of ATF to revoke existing licenses for the importation of certain barrels, frames and receivers.

F.A.I.R.’s objective in writing the letter is to seek approval from ATF on two points: First, more substantive relief for the transition; and second, support for a legislative solution to the problem that would restore the rights of importers to continue to bring these affected goods into the U.S.

Steen points out that F.A.I.R. has been involved in the evolution of the policy associated with the interpretation of the application of §925(d)(3) to barrels, frames and receivers of rifles since 2000. In that year, then ATF Director Bradley Buckles first articulated the concern about the importation of these goods and began the process of creating the repair or replacement policy issued in 2001 (within the industry, this repair or replacement policy is commonly referred to as the “Buckles Doctrine”). Steen pointed out that F.A.I.R. not only worked with ATF on the development of the policy, but also provided the industry with guidance on how to comply with the Buckles Doctrine and worked with ATF staff to help ensure compliance.

Bush Administration May Become Involved

Steen wrote that the Bush Administration “recognizes the impact that this decision has had on businesses” and that such businesses’ financial commitments “are now in jeopardy.” He added that the Administration may consider corrective legislation. Steen urges a mutually agreeable expeditious resolution of the issue.

ATF’s decision, Steen declared, represents a “significant turn-around in legal interpretation regarding these goods and has been implemented in a manner that has not provided sufficient time for importers to mitigate the financial impact of the decision. In fact, importers have been left with goods both in the U.S. and overseas that are now in-transit but unimportable even with the grace period authorized by ATF.” (Editor’s note: ATF authorized a 60-day grace period which ended September 10, 2005.)

Secret ATF Decision-Making

Steen’s letter also decried the lack of notice of ATF’s move as ATF had apparently decided last January that it would deny the importation of certain gun parts, but gave the industry no advance notice of the government’s intention.

“ATF’s secret decision to stop processing permits for goods impacted by this decision months in advance of releasing the policy publicly left industry to make decisions without the benefit of any warning that goods purchased in this interim period would never be importable. During this period, which appears to have lasted months, the industry continued to conduct business and make financial commitments that could have been avoided or delayed if ATF had communicated a pending decision,” Steen wrote.

60-Day Grace Period Inadequate

F.A.I.R. asserted that the 60-day grace period allowed by ATF was “both insufficient and arbitrary.”

“By failing to advise importers that all permit processing was stopped months in advance of this decision,” Steen wrote, “importers seeking renewals for import permits for goods in their possession overseas but not ‘on the water’ have now been completely shut out of importing their goods. According to ATF, they have no recourse even though they have acted appropriately under the existing policy.

Steen’s letter concludes by asserting that businesses’ purchased goods in reliance on the stated policy and the most recent guidance provided by ATF and have now been financially harmed.

More details on this issue will be presented in the next issue of SAR.

The author publishes two of the small arms industry’s most widely read trade newsletters, The International Firearms Trade, which covers the world firearms scene, and The New Firearms Business which covers the domestic market. He also offers FFL-mailing lists to firms interested in direct marketing efforts to the industry. He may be reached at: FirearmsB@aol.com