INDUSTRY NEWS: MAY 2005

By Robert M. Hausman

Industry Takes Issue with State Dept. Over AECA Fee Increase

Calling the December 8th decision of the U.S. Dept. of State’s Directorate of Defense Trade Controls (DDTC) to raise the Ams Export Control Act registration fee by about 300% and to cut in half the authorized time for the registration period, a continuation of “a trend of disservice and arrogance to the business community that is both disgraceful and dysfunctional,” the industry responded recently to the government through the F.A.I.R. Trade Group, the professional organization representing importers and exporters.

The government’s move changes the maximum registration period from up to four years to two years. The registration fees, which have not been adjusted since 1997, have now been increased from $1,200 to $3,500 for two years. The one year registration cost is now $1,750, from the former fee of $600. The prior $1,800 fee for 3 year registrations and $2,200 for four years are no longer offered. In addition, the State Dept. will no longer provide fee refunds to registrants that cease to engage in the manufacture or export of defense articles and defense services.

No Advance Notice

The implementation of this new regulation was based upon the “good cause” exceptions found at 5 U.S.C. 533(b)(B) and (d)(3) of the Administrative Procedure Act. The government said it has determined that notice and public procedure thereon in advance of the effective date are “impracticable and contrary to the public interest as the fees are needed immediately to fund regulatory efforts to help ensure terrorist entities and state sponsors of terrorism do not gain access to exported U.S. defense articles and services.”

The Letter

In its response to State, FAIR’s executive director, Robert Talley wrote, “The fact the DDTC chooses to cloak this decision in the veil of fighting terrorism does not belay the fact that smaller exporters will bear a disproportionate impact of this fee increase and that the fee increase will have a negligible impact on preventing terrorists access to weapons.” “…To present the decision as an interim rule without providing affected industries with prior notice is simply emblematic of the type of service the export community has come to expect from DDTC.”

In announcing the new rule, the State Dept. claimed it had reviewed the regulation and found that it “will not have a significant economic impact on a substantial number of small entities.”

However, this writer was contacted by one entity engaged in the business of exporting curio and relic firearms for collectors whose proprietor stated the nearly three-fold fee increase, “will probably put us out of business for exports.”

“Smaller manufacturers and businesses will bear the brunt of the impact of this fee,” FAIR wrote. “Many small exporters service international accounts and clients for parts, accessories and miscellaneous items that are subject to the AECA. These suppliers provide a valuable service to both large domestic manufacturers and to their customers – after all, would you buy U.S. made firearms if you knew the U.S. government would stifle the export of replacement or aftermarket equipment? …Yet, DDTC seem intent, in the totality of its actions, including the actions raised in this rulemaking, on forcing smaller market participants out of the business.”

List of Complaints

Talley used the occasion of commenting on the new rule to also raise other issues with the government, such as the long wait exporters have experienced as of late for permit approvals.

“…the ability of U.S. small businesses to obtain authorization for exports of United States Munitions List goods has become so atrocious that some exporters have seriously engaged in an evaluation of withdrawal from the international market altogether. While DDTC might see this as a positive development, such a response is shortsighted, self-centered and fails to account for the ultimate goals of the government in this arena.

“Contrary to the actions of the DDTC, the role of the U.S. government should not serve to prevent the development of U.S.-based business participation in global markets, but rather it should assist in the participation of businesses in the international market as long as such action falls under the structures of U.S. foreign policy and U.S. domestic law,” Talley wrote. “DDTC currently impedes the development of a thriving business community in the domestic small arms sector by taking months to approve export license requests and by placing onerous requirements on small transfers. In the interim, products from other foreign governments and other international suppliers, can and do displace U.S. manufactured goods in the international marketplace thanks to the failure of DDTC to perform its duties in a timely and responsible fashion.

“By failing to provide U.S. businesses with a reasonable response time to requests for export permits,” Talley emphasized, “the U.S. government has taken an active role in promoting the development of international arms markets over which it has no control, it has stimulated the development of domestic arms manufacturing capabilities in regions of conflict and it has stunted the development of small and medium-sized businesses in the U.S. These actions are in direct contradiction to the foreign policy objectives set forth by this Administration and fail any reasonable standard of acceptable fulfillment of the statutory responsibilities of the Department of State.”

Talley further complained of the lack of serious discussions on actions such as lifting the dollar exemption amount for an export permit, and accelerating permit processing. He concluded his letter by noting, “With the exception of a vague reference to fighting terrorism, nothing in the proposed rule justifies the position of the Dept. of State in its decision to unilaterally increase the taxes on businesses engaged in the export business.” He also urged DDTC to reconsider the new fee increase and the lessening of the certification period.

It also should be noted that the DDTC is changing the registration code format, according to a December 10, 2004 dated letter the department sent to registrants.

The registration code will now include a letter prefix “M” (designating a manufacturer and/or exporter) or “K” (designating a broker) before the registrant’s four- or five-digit registration number (e.g. K-1234 or M12345). The code will no longer include a four-digit prefix containing the month and day on which the registration will expire. For example, the code prefix “1205”, which indicates the registration expires on December 31, 2005, will be dropped from the registration code.

ATF Affirms: A Shoelace Can Be a Machine Gun

Anyone who has lived for awhile, has learned from experience that things are not always what they seem. For example, a shoelace is something used to tie one’s shoes, and a piece of string, well it’s just that – a piece of string. But not always.

Point-of-fact: In a recent letter to a Class II Manufacturer, the Bureau of Alcohol, Tobacco, Firearms & Explosives Firearms Technology Branch, confirmed that a piece of string can be a machinegun.

The letter was written in response to an inquiry regarding the legality of a small section of string intended for use as a means for increasing the cycling rate of a semiautomatic rifle.

ATF’s response was as follows, “…As you may be aware, the National Firearms Act, 26 U.S.C. Section 5845(b), defines “machinegun” to include the following: …any weapon that shoots, is designed to shoot, or can be readily restored to shoot, automatically more than one shot, without manual reloading, by a single function of the trigger. The term shall also include the frame or receiver of any such weapon, any part designed and intended solely and exclusively, or combination of parts designed and intended, for use in converting a weapon into a machinegun, and any combination of parts from which a machinegun can be assembled if such parts are in the possession or under the control of a person.

ATF continued, “In 1996, FTB examined and classified a 14-inch long shoestring with a loop at each end. The string was attached to the cocking handle of a semiautomatic rifle and was looped around the trigger and attached to the shooter’s finger. The device caused the weapon to fire repeatedly until finger pressure was released from the string. Because this item was designed and intended to convert a semiautomatic rifle into a machinegun, FTB determined that it was a machinegun as defined in 26 U.S.C. 5845(b).

Guilty Plea in AK-47 Export Case

Guillermo Cardoso-Arias pled guilty in mid-January before a U.S. District Court judge, in Fort Lauderdale, FL, to a two-count indictment, charging him with knowingly engaging and attempting to engage in the business of brokering activities with respect to the export of two hundred AK-47 fully automatic assault rifles, in violation of Title 22, U.S. Code, Section 2778, and attempting to export two hundred fully automatic AK-47 assault rifles without a license. The defendant faces a maximum statutory sentence of ten years in prison per count.

In law enforcement recorded conversations, Cardoso-Arias asserted that he was purchasing the rifles on behalf of the Colombian “Autodefensas Unidas de Colombia” (“AUC”), known as the United Self-Defense Forces of Colombia. The defendant added the arms were for fighting the Colombian “Fuerzas Armadas Revolucionarias de Colombia” (“FARC”), known as the Revolutionary Armed Forces of Colombia.” The defendant said there was a need for AK-47’s as they are lighter and easier to handle than other arms when climbing the mountains of Colombia.. Both the AUC and FARC are designated by the U.S. State Department as terrorist organizations.

Advisory on Foreign Govt. Export Docs

The U.S. Census Bureau recently issued an advisory note to industry stating that requests for export documentation by foreign governments should be denied by industry members.

Though foreign governments sometimes make requests for copies of the Shipper’s Export Declaration (SED) for exports from the U.S., the information contained on the SED is considered confidential.

The confidentiality provisions are contained in the Foreign Trade Statistics Regulations, Title 15, Code of Federal Regulations, Part 30.91. This provision states that the information on the SED may not be disclosed to anyone except the U.S. Principal Party in Interest or their agent and only when such a copy is needed to comply with U.S. official legal and regulatory export control requirements.

Questions regarding this policy may be directed to: Jerome Greenwell, Chief, Regulations, Outreach and Education Branch, U.S. Census Bureau at 301-763-2238.

DOJ Confirms ‘Individual Right’ to Arms

The Office of Legal Counsel for the Department of Justice (DOJ) concluded in a report released last December that “the Second Amendment to the U.S. Constitution secures an individual right to keep and bear arms.”

The report, written by a trio of assistant attorneys general, cite sources that were available to America’s Founding Fathers, such as Blackstone and Locke, the Founders’ own correspondence, as well as current constitutional scholars. They also reviewed all the U.S. Supreme Court decisions regarding the gun issue and to what the Founders meant when they used the term “the people.” The report is available on line at: www.usdoj.gov/olc/secondamendment2.htm. Its 93 pages detail the exhaustive research in preparing the report in response to a question from Attorney General John Ashcroft.

Three years ago, Ashcroft made it clear in a letter to gun rights organizations in the U.S. that he considered the Second Amendment to be protective of an individual right.

While courts have been divided on the subject, there has never been a U.S. Supreme Court ruling that held the amendment only protects the right of states to form militias. To the contrary, the high court has suggested in several rulings not directly dealing with gun rights that the Second Amendment, like other amendments in the Bill of Rights, is an individual right.

This is not the first time a high-level examination of the Second Amendment has concluded that it protects an individual right. In 1982, the U.S. Senate Judiciary Committee’s Subcommittee on the Constitution chaired by Utah Senator Orrin Hatch, also reached that conclusion. In his report, Hatch wrote, “In my studies as an attorney and as a United States Senator, I have constantly been amazed by the indifference or even hostility shown the Second Amendment by courts, legislatures, and commentators.”

The DOJ’s report’s authors analyzed the text and structure of the much-debated amendment, and concluded that, “The Second Amendment’s recognition of a ‘right’ that belongs to ‘the people’ indicates a right of individuals.” They further note that, “The ‘right of the people’ that the Second Amendment secures is a right ‘to keep and bear arms.’”

Further, the report stipulates, “those who hold the right are, according to the text, ‘the people’ – individuals- not the government or even the militia.” The report notes that since the arms right is embedded within the Bill of Rights, all of which Amendments apply to individuals, so too does the Second Amendment apply to individuals.

The author publishes two of the small arms industry’s most widely read trade newsletter:, 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 also manages to find time to serve as Executive Director of the Swiss Gun Collectors Association. He may be reached at: FirearmsB@aol.com