By Johanna Reeves, Esq.
How U.S. Foreign Policy and National Security Concerns Impact International Trade
Many companies in the firearms and ammunition industries are increasing their efforts in global trade. There are many reasons for doing this, not the least of which is the significant downturn in the U.S. market since President Trump took office. As demand in the United States has decreased, companies are looking to the international marketplace to fill the gap. In addition, the Trump Administration has rolled out new policies to spur exports of U.S. military equipment abroad, including finally moving forward with the complete overhaul of the export controls over most firearms and ammunition. These so-called “transition rules” (see my 2-part Legally Armed series in Small Arms Review, Vol. 22, No. 8 (October 2018) and Vol. 22, No. 9 (November 2018)) are expected to be finalized at the end of 2018 or in the first quarter of 2019.
Despite the many draws, however, the decision to enter into the global marketplace must take into consideration the enormous amount of government oversight and risks inherent to bureaucratic permissions. As many readers know, a fundamental principle of the U.S. import/export control laws is that appropriate government authorization must be in place prior to either exporting or importing firearms or ammunition, as well as all parts, components, accessories and attachments. That authorization can be a license, agreement or other form of authorization (e.g., license or permit exemption, retransfer approval) issued by the controlling agency of the U.S. Government. Without such authorization, the company cannot lawfully proceed with an export or an import, as the case may be.
The licensing process is cumbersome and expensive. Noteworthy is the fact that many U.S. businesses have been deterred from venturing into foreign markets because of the complexity of U.S. import and export laws governing firearms and ammunition. But for those who have decided to play in this sandbox, the challenges do not end with getting authorization from the U.S. Government. There may be limitations on the license or permit (the dreaded license “provisos”) or required notifications (example, submitting a list of serial numbers of all firearms actually received by the foreign customer). But these pain points are often outweighed by the overall pleasure in obtaining the approval.
It is too tempting to take for granted that once an authorization is received it will remain valid for the term granted on the license. A done deal, so to speak. But such complacency presumes that the geopolitical relationships of the United States and its allies remain static. Nothing could be farther from the truth. Always lurking beneath the surface is the possibility that the U.S. Government may take away the permission to export or import at any time. Government authorization to export or import is not irrevocable. Indeed the ability of a U.S. company to engage in international trade is not a guaranteed right. With a rapidly changing international marketplace, it is vital that U.S. businesses keep this in mind.
When faced with a revocation, suspension or an amendment that changes the scope of an open authorization, companies may wonder how the U.S. Government has the authority to seemingly take away something that had been previously granted. The question may arise as whether such an action is a “taking” of property and if a company’s “due process” has been infringed in violation of the Fifth Amendment to the Constitution.
Though decided several years ago, the B-West Imports, Inc. v. U.S. case, 75 F.3d 633 (Fed. Cir. 1996), still stands as precedence and is illustrative of the U.S. Government’s broad authority to revoke, suspend or amend approved import or export authorizations. In this case, several munitions importers challenged a federal ban on the importation of defense articles from China. The ban originated in a press conference President Clinton gave on May 26, 1994, in which he announced the renewal of the Most Favored Nation trading status for China. Despite extending this status, however, President Clinton also made clear that his administration would implement certain trade sanctions against the country because of China’s continuing human rights abuses. One of the sanctions was a ban on the importation of munitions from China.
Two days after the president made this announcement, the Secretary of State advised the Secretary of the Treasury (at that time, the U.S. Treasury had jurisdiction over imports of defense articles under the Arms Export Control Act or “AECA”) to “take all necessary steps to prohibit the import of all defense articles enumerated in the U.S. Munitions Import List.” Consequently, the U.S. Customs Service advised its agents that the embargo was effective on May 28, 1994, and that all permits for importing munitions from China had been rendered null and void. The Bureau of Alcohol, Tobacco and Firearms (ATF) advised permit holders that in light of the embargo, all permits were revoked, effective immediately. Subsequently, the U.S. Congress passed legislation that provided some relief to importers by allowing shipments in transit to the United States in a Customs Bonded Warehouse or Foreign Trade Zone as of May 26, 1994.
The plaintiffs in the case, B-West Imports, Hing Long Trading Co., K-Sports Imports, Inc., Century Arms, Inc., Intrac Corporation, Northwest Imports, J’s Pacific Enterprise, Inc., and Sportarms of Florida, filed suit in the U.S. Court of International Trade (CIT). They argued the government’s actions exceeded the scope of authority granted by the AECA and that the revocation of import permits violated the Due Process and Takings Clauses of the Fifth Amendment to the U.S. Constitution. The CIT granted the government’s motion for summary judgment and dismissed the complaint, finding the AECA authorized the President to order a ban on importing arms from China because of the statutory grant of authority to “control” arms imports, and such control includes the ability to totally prohibit such imports. Further, the lower court held that ATF was authorized to implement the ban by revoking or withholding regulatory approval (i.e., the permits). The court rejected plaintiffs’ constitutional claims on the grounds that there was no statute or regulation that gave the parties a property right to import firearms or other munitions into the United States from China. In other words, by virtue of granting a permit or license to import products into the United States, the government does not confer to the permit holder a legitimate claim of entitlement that invokes the government’s obligations under the Due Process Clause. According to the court, because the statutes and regulations governing arms imports make it clear that the business of importing into the United States is subject to such extensive government controls, the government’s denial or revocation of an import permit cannot be regarded as a taking of property within the meaning of the Takings Clause. See generally, B-West Imports, Inc. v. U.S., 880 F.Supp 853 (Ct. Int’l Trade 1995).
On appeal, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court’s decision, finding no statute or regulation that grants a right to engage in the import of defense articles. Indeed the appellate court reiterated that nothing in the statute or regulations state or imply that an authorization, once granted, becomes irrevocable. As there is no right infringed, there is no valid due process argument to be made that a revocation of an open import permit constitutes a taking of property.
To drive home this point, the appellate court cites the Mitchell Arms, Inc. v. United States case (7 F.3d 212 (Fed. Cir. 1993)), another case in which the court rejected a takings claim. In the Mitchell case, ATF revoked import permits for certain “assault weapons,” resulting in Mitchell losing the opportunity to sell the firearms in the United States under an existing contract. The Mitchell court held that ATF’s revocation of the import permits did not amount to a taking under the Constitution.
Mitchell’s expectation of selling the assault rifles in domestic commerce was not inherent in its ownership of the rifles. Rather, it was totally dependent upon the import permits issued by ATF. In short, Mitchell’s ability to import the rifles and sell them in the United States was at all times entirely subject to the exercise of ATF’s regulatory power. Consequently, any expectation which arose on Mitchell’s part as a result of the import permits did not constitute a property right protected by the Fifth Amendment.
Mitchell at 217.
This same rationale is equally applicable to export licenses issued by the Directorate of Defense Trade Controls (DDTC). The receipt of an export approval from DDTC necessarily comes with it the chance that it could be revoked, suspended or amended by DDTC for foreign policy or national security reasons. Section 38 of the AECA grants the President the authority to control the import and export of defense articles “in furtherance of world peace and the security and foreign policy of the United States.” As the B-West court points out, the U.S. Government’s authority to act in foreign affairs is broadly construed and has been held to include the ability to prohibit particular export and import activities, even if previously licensed.
With this broad authority comes the known commercial risk that approved licenses and permits may be suspended or revoked by the same government agency that granted them in the first place. Companies assume this risk when they choose to engage in heavily regulated activity, like importing and exporting firearms and other munitions. With the rapidly changing international landscape, it is more important than ever that companies keep this in mind when participating in international trade. Maintaining a robust compliance program, screening each transaction for prohibited parties, countries and end-uses, and generally keeping aware of current events can go a long way in staying ahead in the export control game.
The government giveth, the government taketh away.
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.
About the author
Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For more than fifteen years she has dedicated her 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 has served as Executive Director for the Firearms and Ammunition Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). She has also served as a member of the Defense Trade Advisory Group (DTAG) since 2016. Johanna can be reached at firstname.lastname@example.org or 202-715-9941.
|This article first appeared in Small Arms Review V23N1 (January 2019)|