Legally Armed: October 2018

By Johanna Reeves, Esq.

••• EXPORT CONTROLS UPDATE •••

U.S. Government Proposes Transitioning Certain Firearms and Ammunition from ITAR to EAR
(This is the first of a two-part series.)

On May 24, 2018, the U.S. Government announced its intent to transition most firearms and ammunition away from the export controls of the Department of State to those of the Department of Commerce. The cited reason for the change is to revise the scope of the Department of State’s jurisdiction to cover only those weapons or articles that are inherently for military use or that provide the United States with a critical military or intelligence advantage. All other items will transition to the Department of Commerce’s control.

As expected, the proposed rules have prompted a considerable amount of objection. Political adversaries to President Trump have accused the Administration of catering to the gun lobby with callous insensitivity to the brutal crimes inflicted on American society. Similarly, anti-gun groups such as the Giffords Law Center and others have spun the proposed transition as making it easier for weapons to flow because there will be little or no oversight into the activities of arms manufacturers and brokers of semi-automatic assault weapons.

Contrary to those opinions, the fact is the proposed transition rules are not a decontrol over the manufacture, transfer or export of firearms and ammunition. Indeed, the proposed changes are a shifting of oversight responsibility that is long overdue and will help strengthen the national security of the United States by ensuring that export licensing authorities can focus on reviewing proposed exports of items warranting stringent controls rather than waste resources on export licensing for springs and bolts or for items that are abundant throughout the world.

Indeed there will be many positive things that come out of the proposed transition for the firearms and ammunition industries. However, the changeover to a largely unfamiliar regulatory scheme will not be easy, as we have seen with the other defense sector industries that already have dealt with the “Export Control Reform” efforts of the Obama Administration.

This article is the first in a two-part series that will examine the proposed transition rules, the potential impact on the firearms and ammunition industries and responses to the predominant objections to the proposed rules.

I. The Export Control Lists

Under current U.S. export controls, two primary federal agencies with licensing jurisdiction are the Department of State and the Department of Commerce. (The Department of the Treasury’s Office of Foreign Assets Control (OFAC) also issues licenses under U.S. economic and trade sanctions. However, this article does not address OFAC licensing, as the focus is on the State and Commerce proposed transition rules.) The Department of State, pursuant to the Arms Export Control Act, controls the exports and temporary imports of “defense articles” and “defense services” through its regulations known as the International Traffic in Arms Regulations (ITAR). Articles and information subject to the ITAR are listed on the U.S. Munitions List (USML).

The Department of Commerce controls through its regulations, known as the Export Administration Regulations (EAR), the exports and re-exports of items not listed on the USML, which may have civilian-, military-, terrorism- or weapons-of-mass-destruction-related applications. Items subject to the EAR are listed on the Commerce Control List (CCL).

Currently, most small arms and ammunition are listed on the USML and therefore subject to the license requirements and restrictions of the ITAR. The only firearms not controlled under the ITAR are certain types of non-combat shotguns and associated ammunition, both of which are listed on the CCL, and as an important aside, currently require licensing to most countries in the world.

Both the ITAR and the EAR prescribe export license requirements and restrictions in furtherance of the national security and foreign policy interests of the United States. However, there are some significant differences between the two regulatory regimes. Below are some illustration of key differences.

1. Controls over Technical Data

ITAR controls apply to exports, re-exports and temporary imports of not just hardware but also technical data (including software) and assistance related to defense articles. ITAR controls over so-called “Defense Services” are broad and extend to use and operation, not just design, development and production.

By comparison, the EAR controls only transmission of certain technology, and there is no corresponding concept of defense service controls. EAR controls over “technology” are more narrowly focused than the ITAR controls over technical data and apply in limited contexts. Consequently, there are many activities involving training, presentations and demonstrations to foreign persons that may not trigger a license requirement under the EAR as they do under ITAR.

In addition, the EAR do not control published technology or software “when it has been made available to the public without restrictions upon its further dissemination … .” For example, subscriptions available without restriction, libraries or other public collections open to the public and from which the public can obtain tangible or intangible documents, unlimited distributions at a conference, seminar, trade show or exhibition generally accessible to the public, public/unlimited distribution in any form, including posting on the Internet on sites available to the public. Many may rejoice over this, as the ITAR still do not recognize the Internet as being in the “public domain.”

As further illustration of technology not controlled under the EAR, the BIS proposed rule cites the example of a gun manufacturer posting a firearm’s operation and maintenance manual on the Internet, making it publicly available to anyone interested in accessing it and without restrictions on further dissemination. According to the proposed rule explanation, such operation and maintenance information included in that published manual would no longer be “subject to the EAR” as placing it on the Internet would put it in the “public domain.” Nonproprietary system descriptions, including for firearms and related items, are another example of information that would not be subject to the EAR.

2. Controls over Brokering

The ITAR control “brokering activities,” which is defined as any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, re-export, or retransfer of U.S. or foreign defense articles or defense services, regardless of origin. However, there are no similar controls on the EAR side. I will address the impact of the proposed rules on brokering in more detail below.

3. Registration

The ITAR require registration of all U.S. manufacturers, exporters and brokers of defense articles and defense services. The annual fee for this registration ranges from the minimum $2,250 to $2,750 plus $250 for each license/approval obtained during the preceding 12-month period. Conversely, the EAR do not require registration, and there are no fees associated with license applications.

4. Re-exports of Parts and Components

Under the ITAR, any change in end-user or end-use as described in the original export license requires, with very few exceptions, prior authorization from the Department of State. This re-export or retransfer approval requirement extends to all USML-listed articles, even parts and components that are incorporated into a finished item overseas, and follows the articles for life, regardless of the number of times the article changes hands. This causes foreign customers great consternation and is what many have termed the “ITAR taint.” Currently, all parts and components for firearms listed in USML Cat. I are also defense articles, down to springs and bolts, and therefore subject to the ITAR licensing requirements and restrictions for re-exports.

The EAR re-exports controls over parts and components are very different. Foreign-made commodities that incorporate EAR-controlled U.S.-origin commodities may be subject to the EAR only if they have de minimis level of U.S. content. What constitutes the de minimis level depends on the commodity and the destination country for the re-exports and may range from no de minimis levels (for items subject to higher controls) to 10% or 25% de minimis.

II. Efforts to Reform U.S. Export Controls

In 2009, the Obama Administration announced its intention to reform the U.S. export control system, which it saw as overly complicated with too many redundancies to effectively support the national security and foreign policy interests of the United States. Through this “Export Control Reform” (ECR) initiative, the U.S. Government would bring U.S. export controls in line with current global threats by focusing on critical technologies and strengthening the competitiveness of key U.S. manufacturing and technology sectors. ECR was to consist of three stages: Phases I and II would focus on reconciling the various definitions, regulations and policies for export controls, while building toward Phase III, which would create a single control list, single licensing agency, unified information technology system and enforcement coordination center.

By the time President Trump took office in 2017, significant strides had been made under ECR, but clearly it was still a work in process. Phases I and II were largely complete, but not all USML categories had been revised to transition items no longer warranting control as “defense articles” to the CCL. Those untouched by ECR? Categories I, II and III, which control firearms and ammunition.

III. Proposed Rules to Transition Firearms and Ammunition from USML to CCL

After much anticipation and false starts, the Departments of Commerce and State finally published on May 24, 2018, their respective proposed rules to transition most firearms and ammunitions from the USML over to the CCL. Although no longer branded “ECR,” this is a continuation of the U.S. Government’s effort to modernize U.S. export controls and better focus ITAR controls over only those weapons or articles that are inherently for military use or that provide the United States with a critical military or intelligence advantage.

Contrary to many of the objections voiced by politicians and anti-gun groups, the transition from USML to CCL will NOT result in a decontrol of firearms or ammunition. Firearms transitioning from the USML to CCL will be subject to controls under National Security (NS), Regional Stability (RS), Crime Control and Detection (CC), Firearms Convention (FC), United Nations Sanctions (UN) and Anti-Terrorism (AT). Indeed, the proposed rules make it abundantly clear that BIS will require licenses to export or re-export to ANY country firearms or other weapons that transition from the USML to the CCL. Yes, this includes Canada.

The chart summarizes the firearms and ammunition slated to transition from the USML to the CCL once the rules are finalized.

Not all firearms and ammunition are slated to transition over to the EAR. Indeed, there are several types of firearms and ammunition that will remain subject to the ITAR. For example, some of the firearms that will remain in USML Cat. I include fully automatic firearms to and including .50, fully automatic shotguns, regardless of gauge, silencers, mufflers and sound suppressors and specially designed parts and components therefore and magazines and drums with a capacity greater than 50 rounds.

In addition, it should be noted that the words “combat shotguns” (currently in the text of USML Cat. I(d)) do not appear in the proposed Department of State rule. However, the companion Commerce proposed rule states that “combat shotguns” and fully automatic shotguns are subject to the ITAR. Nowhere is the term “combat shotgun” defined, so it is unclear at this point whether the USML Cat. I will include a specific entry for “combat shotguns” in addition to fully automatic shotguns.

The types of ammunition that will remain in USML Cat. III include ammunition preassembled into links or belts and projectiles that contain a core or solid projectile produced from one or a combination of the following: tungsten, steel or beryllium copper alloys.

For a complete list of the articles targeted to remain on the USML and subject to the ITAR, please consult the Department of State proposed rule, available on the Federal Register website at federalregister.gov/documents/2018/05/24/2018-10366/international-traffic-in-arms-regulations-us-munitions-list-categories-i-ii-and-iii.

IV. Conclusion

On May 24, 2018, the U.S. Government announced its intent to change forever the way firearms and ammunition are exported. In addition to examining the potential impact the transition will have on the firearms and ammunition industries, the next “Legally Armed” column will review and respond to the objections raised by certain politicians, the anti-gun community and international non-governmental organizations. Please stay tuned.

•••

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

NOTE: The “Legally Armed” column in SAR Vol. 22, No. 7 on “The Impact of Mass Violence on Gun Control in the United States” contained erroneous dates. Please note the following:

1. The section related to the Brady Act contained a section header that read “1991.” The heading should read “1993.”

2. The Fix NICS Act of 2017 was enacted as part of the consolidated Appropriations Act, 2018 (signed by the President on March 23, 2018). This occurred after the column was drafted, but before the column was published in SAR.

About the Author

Johanna Reeves is the founding partner of the Washington, D.C. law firm Reeves & Dola, LLP (reevesdola.com). For 15 years she has dedicated her law practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the F.A.I.R. Trade Group (the Firearms and Ammunition Import/Export Roundtable) (fairtradegroup.org). Since 2016, Johanna has served on the Defense Trade Advisory Group (DTAG). Johanna can be reached at 202-683-4200 or at jreeves@reevesdola.com.