Exporting Firearm Suppressors

Will a Policy Change Allow U.S. Industry to Compete in the Global Market?

“Ding dong the witch is dead!” In the midst of the summer heat and the craziness that has gripped our country (the pandemic, social unrest and uprisings, mob violence and political nuttiness), something happened that appeared to bring a ray of sunshine to the firearms industry. After more than 18 years, the U.S. Department of State rescinded its policy of denial that prevented U.S. companies from exporting suppressors to most commercial end-users. Because of this policy, the only permissible exports were to military or official end-users in countries friendly to the U.S.

Hailing the policy change as a win, the firearms industry was quick to praise President Trump and his administration for making such a bold move. Many expect the change will boost suppressor sales and enable U.S. companies to finally compete in the well-established global market. Knox Williams, president of the American Suppressor Association (ASA), said in a statement issued by ASA, “This change in policy will create hundreds of jobs at a time when our country needs them the most” (americansuppressorassociation.com/suppressor-exportation-now-legal).

The projected sales certainly have the anti-Trump and anti-firearm forces worried. In a July 13, 2020, article, the New York Times cites a potential “$250 million a year in possible new overseas sales” of suppressors (Michael LaForgia and Kenneth B. Vogel, “Inside the White House, a Gun Industry Lobbyist Delivers for His Former Patrons,” nytimes.com/2020/07/13/us/trump-gun-silencer-exports.html). “I sure hope that none of these are aimed at U.S. or allied forces” the Times quotes Lincoln Bloomfield, Jr., who served under President George W. Bush as Assistant Secretary of State for Political-Military Affairs when the State Department initiated the so-called ban.

But is this change in policy really all that it’s cracked up to be?

The Department of State—Protector of U.S. Foreign Policy and National Security

Pursuant to the Arms Export Control Act (AECA), Pub. L. 94-329, 90 Stat. 729 (enacted June 30, 1976, codified at 22 U.S.C. Ch. 39), Congress granted the president the power to control the export and import of defense articles and defense services “in furtherance of world peace and the security and foreign policy of the United States” (22 U.S.C. §2778(a)(1)). As part of this authority, the president must determine what items should be controlled as defense articles and what activities constitute defense services.

By way of executive order, the president has delegated to the Secretary of State the authority to control the exports, temporary imports and brokering of defense articles and defense services (most of you are likely familiar with the fact that the Bureau of Alcohol, Tobacco, Firearms and Explosives controls the permanent import of defense articles, but that is not the subject of today’s article). Through multiple layers of delegations, the Political-Military Affairs Bureau’s Directorate of Defense Trade Controls (DDTC) is primarily responsible for administering the regulations that implement the AECA. The regulations are known as the International Traffic in Arms Regulations (ITAR), which have been the subject of many “Legally Armed” columns.

Firearm Suppressors—Significant Military Equipment?

The U.S. government has long controlled firearm suppressors as defense articles under the ITAR, presumably in furtherance of world peace and the national security and foreign policy of the United States. Going back to at least July 1993, firearm suppressors were classified on the United States Munitions List (USML) under Category I, paragraph (b). See 58 Fed. Reg. 39283 (July 22, 1993). Back then, however, the State Department did not consider firearm suppressors to be “Significant Military Equipment” (SME). SME is defined as articles for which special export controls are warranted because of the capacity of such articles for substantial military utility or capability, and includes those articles on the USML marked with an asterisk (*) as well as all classified defense articles. See 22 U.S.C. §2794(9); 22 C.F.R. §120.7.

The State Department did not classify suppressors as SME until 2002. In an April 29 notice, the State Department announced that firearm suppressors were re-designated as SME. See 67 Fed. Reg. 20894 (Apr. 29, 2002). The public notice did not contain any explanation as to what prompted the re-designation, but it is important to note that this announcement came less than 2 weeks after the State Department initiated its policy (unpublished) of prohibiting suppressor exports to private entities.

Eighteen years later, significant change swept across the U.S. export controls landscape. In March 2020, new rules went into effect that completely overhauled the USML categories controlling firearms and ammunition, whereby most commercially available firearms and ammunition moved off the USML and over to the Commerce Control List for exports. Suppressors were left behind on the USML, along with their SME designation. But as it turns out, more change was coming.

State Department Rescinds Its Old Policy

On July 10, 2020, the DDTC announced that it was changing its policy on suppressor exports. The web posting read as follows:

Effective immediately, the Department of State has rescinded its April 18, 2002, firearms sound suppressor policy. This policy provided for enhanced guidelines for the approval and issuance of export licenses for sound suppressors and restricted their export to only official end users such as government or military entities. Henceforth, DDTC will handle suppressor exports in a manner consistent with other USML-controlled technologies. This requires that applicants must identify a specific end user. Applications for the permanent export of hardware must include purchase documentation, a DSP-83 non-transfer and end use certificate (as suppressors are considered Significant Military Equipment under the USML), an end-user statement, and an import permit (if required by the destination country). Consistent with current licensing practices, all licenses will be reviewed and adjudicated on a case-by-case basis, and any pre-license checks or post shipment verifications will be conducted as deemed necessary and appropriate based on the totality of the circumstances of the transaction. Standard staffing protocols within the Department and interagency will be applied as required.

When the announcement came down, it was difficult to tell what was causing the popping sound heard far and wide in Washington, D.C. Was it industry lobbyists and representatives gleefully opening champagne in celebration? Perhaps it was the heads of gun control advocates exploding in frustration and dismay? More likely it was both, but what actually changed? Did this announcement really mark the end of an era? Was the State Department actually lifting a ban and easing restrictions on the exports of suppressors?

It is important to not lose sight of the details, where the devil so often lurks. According to the notice, “DDTC will handle suppressor exports in a manner consistent with other USML-controlled technologies.” The DDTC goes on to explain that “all applicants must identify a specific end-user,” which by the way is a standard requirement for all other articles controlled under the ITAR. When asked for clarification on this point in the civilian context, the DDTC advised that it will not authorize the export of suppressors to dealers or distributors without identification of the ultimate end-user (i.e., the customers) and presentation of a Nontransfer and Use Certificate (Form DSP-83) signed by that individual. All of which are standard requirements for SME. Consequently, applications to export suppressors to distributors or “for commercial resale in NAMED COUNTRY” as an end-use/end-user will be returned without action. See Reeves & Dola, LLP alert, “State Department Updates Suppressor Policy,” July 15, 2020, reevesdola.com/alerts.

So is this change really better for industry? Sure, as long as the exporter is able to identify each ultimate individual end-user and get his or her signature on a Form DSP-83. Is this realistic? Or will industry remain stuck in the same old position of not being able to obtain the elusive State Department approval to export suppressors to non-official entities or persons because of a requirement that is impossible to satisfy? In the haunting words of Pete Townshend, “Meet the new boss, same as the old boss.”

Many in the media and elsewhere will miss this nuance. “U.S. loosens export curbs on gun silencers” screams the headline from a Reuters report, reuters.com/article/us-usa-arms-silencers-idUSKBN24B34K. Loosen? The report goes on to explain that “[s]ilencers will now be able to be licensed and exported like any other weapon on the U.S. munitions list which includes satellites and nuclear weapons.” The use of the phrase “be able to” is an interesting twist on reality. Remember when Democrat politicians and human rights watchdog groups were wringing their hands over the proposed rules to move firearms and ammunition off the USML? They exclaimed that such a change in export controls will add to world instability and undermine our national security. Back then, being able to be licensed and exported like other weapons on the USML was a good thing. Now it’s not? It will make your head spin.

In reality, the harsh truth for industry may very well be the fact that suppressors are licensed and exported like any other weapon on the USML, particularly those articles designated as SME. The dawning of a new era may in practical terms be nothing more than a big fat nothingburger.

But hysterics are never lacking in Washington, and this latest development does not disappoint. There is “concern” over how this change came about, namely the role of a particular White House lawyer who had personal and financial ties to the suppressor industry. These ties are detailed in the July 13 Times article, which quotes government watchdog groups saying, “the case raised concerns about special interests gaining remarkable access in the Trump White House.” The Times goes on to report that “[t]here is a pattern in the Trump Administration of handing over policymaking to allies of special interest groups with a stake in those policies.”

Yes, you read those two quotes correctly. No doubt the watchdog groups were just formed, and the Times reporter is brand new to Washington, D.C.

Predictably, House Democrats are very upset, and not just because of the prospect of U.S.-made suppressors flooding the world market and the risk to U.S. troops. Citing the Times article, Stephen Lynch (D-MA), Chairman of the House Subcommittee on National Security, sent a letter to the Office of Management and Budget requesting documents related to the State Department’s decision to overturn its restrictive policy. “The overseas sale of U.S. defense articles, especially when those weapons could endanger the safety and security of our men and women in uniform, cannot and should not be influenced by personal financial or political interests.” The letter is available at oversight.house.gov.

Of course neither the letter request nor the House Committee on Oversight and Reform’s web announcement acknowledge the legality, popularity and widespread availability of firearm suppressors throughout the world. This accessory has been and remains a very popular item in the commercial market, not just in the U.S. but everywhere. So regardless of whether U.S. industry gets to participate in the world market, suppressors will continue to be bought and sold. How can the U.S. government continue to justify treating suppressors as SME?

The July 13 Times article quotes a State Department spokeswoman as saying “U.S. companies should have the same opportunity to compete in the international marketplace as other manufacturers around the world.” This spokeswoman also explained that suppressors are more readily available in foreign countries now than when the ban was originally imposed. Nevertheless, the State Department has not changed its designation of firearm suppressors as SME.

There is a perception that the Trump Administration has lifted a ban on suppressor exports because a blanket policy of denial is no longer in place. The perception is clearly dominating both sides of the debate. But talk is cheap, and words are easy. The fundamental issue of whether the new State Department policy amounts to the change for which industry so long has been pining is not settled. It seems that as long as suppressors are classified as SME, there really won’t be any change at all. We’ll see.

***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 (reevesdola.com). For more than 17 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. On March 26, 2019, Johanna testified before the House Subcommittee on Oversight and Investigations on the proposed rules to transition most firearms and ammunition from the export controls of the State Department and over to the jurisdiction of the Commerce Department (foreignaffairs.house.gov/2019/3/proposed-small-arms-transfers-big-implications-for-u-s-foreign-policy). Johanna can be reached at jreeves@reevesdola.com or 202-715-9941.

How Can a U.S. Company Import U.S.-Origin Military Surplus Firearms?

In continuation of my previous “Legally Armed” column, “How U.S. Foreign Policy and National Security Concerns Impact International Trade,” Small Arms Review, Vol. 23 No. 1 (January 2019), I thought I would delve into the complex issue of the barriers that prevent private companies from importing U.S.-origin firearms back into the United States for commercial sale. This is a surprisingly complex area where law and politics intersect with international trade and the commercial market of military surplus firearms.

There is a tremendous amount of interest among history buffs and firearms enthusiasts in the weapons of World War II and other international conflicts in which the United States was involved. Some examples include the M1 Garand, the M1 Carbine and the 1911 pistol. At the end of these conflicts, much of the most desirable materiel may have been left overseas or given to foreign governments. However, since 2013 private entities have been prohibited from importing these pieces of history back into the United States for sale to the public. This Obama-era block to private industry remains in place because of lack of action on the part of both the Republican-controlled Congress and President Trump.

How can such a prohibition exist? We are talking about U.S.-made products, so why can’t a private importer bring these back into the United States for the domestic collectors’ market if the foreign government doesn’t want them anymore?

As many readers may be painfully aware, there is an intricate process that must be followed to import any article of U.S. origin. Further, surplus military articles are subject to very high government scrutiny for foreign policy implications and the potential impact on public safety. Inevitably, political motivations also find a way into the discussion.

A. Overview of Applicable U.S. Export Laws

First, we must briefly review the U.S. laws governing the original sale and export to the foreign party. In general terms, U.S. law is structured to prevent firearms and other defense articles from being exported unless the foreign recipient promises it will not transfer, dispose or change end-use without prior permission from the U.S. Government. This restriction on transfers, change in end-use or destination applies to firearms obtained through U.S. Government Foreign Military Sales Programs, Grants (Military Assistance Program or Excess Defense Article) and Direct Commercial Sales (DCS), even when the foreign party wants to sell the firearms to a private U.S. entity many years later for import back into the United States.

Arms Export Control Act (AECA). “In furtherance of world peace and the security and foreign policy of the United States,” the Arms Export Control Act (AECA) grants the president the authority to control the export and import of classified and unclassified defense articles and defense services and to provide foreign policy guidance to persons of the United States involved in the export and import of such articles and services. The AECA restricts retransfers of U.S.-origin defense articles by requiring foreign recipients of U.S.-origin defense articles, whether by sale or lease, to request permission from the State Department before it resells, retransfers or re-exports such articles.

Foreign Assistance Act (FAA). The FAA governs defense articles provided to foreign countries on a grant basis. Like the AECA, the FAA places end-use restrictions on foreign recipients of weapons and gives a right of first refusal to the U.S. Government for any weapon a foreign government wants to sell. The FAA also requires the U.S. Government receive the net proceeds from any sale of defense articles provided as aid to a foreign country, unless the State Department waives this requirement.

Also pertinent to our discussion is Executive Order 13637 (“EO 13637”), under which the president delegated to various agencies the functions conferred under the AECA. Under Section 38 of the AECA (Control of Arms Exports and Imports), the functions related to exports, temporary imports and brokering of defense articles and services are delegated to the Secretary of State, who in turn delegated down to the Deputy Assistant Secretary for Political-Military Affairs (PM). The PM oversees the Directorate of Defense Trade Controls (DDTC) and the Office of Regional Security and Arms Transfers (PM/RSAT). DDTC administers the International Traffic in Arms Regulations (ITAR), the registration and licensing regulations governing exports, temporary imports and brokering of defense articles and defense services.

The AECA functions related to permanent imports of defense articles and services are delegated to the Attorney General. The Attorney General in turn has delegated administration of the permanent import regulations in 27 C.F.R. Chapter II, Part 447 to the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). However, EO 13637 makes clear that “[i]n carrying out such functions, the Attorney General shall be guided by the views of the Secretary of State on matters affecting world peace, and the external security and foreign policy of the United States.”

The process for a private entity to bring U.S.-origin military surplus back into the United States consists of two steps: (1) the foreign owner must obtain approval to transfer the firearms to the U.S. importer; and (2) the importer must obtain approval to enter the firearms into the commerce of the United States. You may be thinking, “It’s only two steps, so how hard can it be?” Let me show you.

B. Step One: Obtain Approval for Transfer to U.S. Importer

The first hurdle an importer faces to bringing U.S.-origin military surplus firearms back into the United States is obtaining approval from the Department of State for the transfer from the foreign owner to the U.S. importer. As mentioned above, U.S. Government approval is required before a foreign end-user can transfer, sell, dispose of or change end use of any U.S. origin defense article. This rule applies even when the proposed transferee is a U.S. company interested in bringing the firearms back into the United States.

The transfer approval process begins with the foreign government owner submitting a retransfer request to the State Department, not the U.S. importer. The Bureau of Political-Military Affairs handles all retransfer requests, and the responsibility is divided as follows: (i) for exports undertaken under a foreign military or government-to-government sales program, the retransfer requests should be submitted to PM-RSAT; (ii) for exports that were direct commercial sales, retransfer requests should be submitted to DDTC.

The process for obtaining State Department approval for retransfers of U.S.-origin firearms is anything but easy. Often, the private importer cannot even get the process started because so little is known about how the firearms got to the foreign government in the first place. This is especially true for the curio or relic firearms because so much time has passed since the original export. Regardless, this history is vital to determine what retransfer restrictions attached to the firearms (remember the retransfer restrictions are created at the time of export). Without knowing the terms of the original export, it is virtually impossible to know how to go about obtaining the retransfer approval. In fact, without sufficient evidence to the contrary, for example a bill of sale, conveyance document or export license, the State Department will presume undocumented firearms to be of Grant origin.

All retransfer requests undergo an extensive interagency review prior to being recommended for approval or denial to the Assistant Secretary for Political-Military Affairs or the Under Secretary for Arms Control and International Security. This whole process can take years, and there is no guarantee that the State Department will ultimately approve the retransfer.

C. Step Two: Get ATF Approval for Permanent Import into the Commerce of the United States

If the State Department finally does approve the retransfer, the process then turns to the U.S. importer, who must prepare the Application and Permit for Importation of Firearms, Ammunition and Defense Articles, also known as the “ATF Form 6.”

Generally, the Gun Control Act of 1968 prohibits importation of surplus military firearms unless the import is for government or law enforcement end-users. ATF defines a surplus military firearm as any firearm that belonged to a regular or irregular (e.g., militia) military force at any time. See Firearms-Guides-Importation & Verification of Firearms, Ammunition and Implements of War–Surplus Military (available at atf.gov/firearms/firearms-guides-importation-verification-firearms-ammunition-and-implements-war-surplus, last visited Dec. 14, 2018).

Curio or relic firearms, however, are exempt from this prohibition. To qualify for the curio or relic designation, a firearm must fall into one of the following three categories: (1) manufactured at least 50 years prior to the current date (this does not include replicas); (2) certified by the curator of a municipal, State, or Federal museum which exhibits firearms to be curios or relics of museum interest; or (3) derive a substantial part of its monetary value because the firearm is novel, rare, bizarre or associated with some historical figure, period or event. This last category requires proof of qualification by evidence of present value and that like firearms are not available except as collectors’ items or that the value of like firearms available in ordinary commercial channels is substantially less.

ATF stated policy has been to return without action any application to import U.S. origin curio or relic military surplus firearms unless the application includes a copy of the State Department retransfer authorization given to the foreign supplier. But is ATF obligated to approve an import permit for U.S.-origin firearms once the State Department has approved the retransfer? As at least one case illustrates (discussed below), State Department transfer authorization does not guarantee the importer will be able to enter the firearms into the commerce of the United States for resale.

D. Notable Cases and Recent Developments

To illustrate the difficulties in importing U.S.-origin firearms, let us review a case that gained significant media and political attention a few years ago: the case of the Korean M1 Garands and M1 carbines, which the United States sold to the South Korean government for use in the Korean War. Both types of rifles are over 50 years old and obsolete to the South Korean Government, but can bring in revenue if sold to United States importers because of the significant market of U.S. collectors and firearms enthusiasts. Because of the age of their manufacture, these M1 Garands and carbines qualify as “curio or relic.”

While George W. Bush was still president, the South Korean government submitted to the State Department a request to transfer a total of 857,470 rifles (87,310 M1 Garands and 770,160 M1 carbines) to U.S. importers. This request went through an interagency review process, but it was not until May 2009 that the State Department granted approval for the South Korean government to transfer the M1 Garands and carbines. Soon after the approval, the new Obama Administration expressed concerns, including trepidation that transferring the M1 carbines into the United States, particularly in the stated quantities, posed a significant law enforcement and public safety risk. These concerns ultimately led to the State Department rescinding its May 2009 decision to allow South Korea to transfer the M1 firearms.

In 2012, however, there appeared to be a break in the case. On January 18, the Korea Times reported that according to Lee Sun-chul, the Korean deputy defense minister for force and resources management, the U.S. Government had agreed to allow the importation of 86,000 M1 Garand rifles from Seoul. The article cited to an approval letter from the United States, dated September 2, 2011. 600,000 M1 carbines were rejected for import, reportedly because of detachable high capacity magazines.

The prospective import of 86,000 Garands was put on hold indefinitely on August 29, 2013, when President Obama announced a new policy of prohibiting commercial re-importation of U.S.-origin surplus military firearms that the United States supplied to foreign governments, either as direct commercial sales or through foreign military sales or military assistance programs. With no action from President Trump to revoke this policy, the prohibition remains in effect.

It is important to point out that the administrative blocks to the import industry from bringing in military surplus firearms back into the United States do not affect the ability of the Civilian Marksmanship Program (CMP) from obtaining surplus firearms, such as the M1 Garand or 1911 pistols. The CMP is able to acquire U.S. surplus military firearms, including those from overseas, from the U.S. Army. The CMP then refurbishes the firearms and sells them at retail to the public participating in competitive shooting programs. U.S. citizens can purchase these firearms from the CMP, provided they are not prohibited from owning a firearm under the GCA and they are a member of an affiliated club.

On April 7, 2017, Gina Johnson, General Manager of the CMP South operations in Alabama, announced the CMP would be acquiring 86,000 M1 Garands, which the U.S. Army was due to receive back from the Philippines Government. It is unclear when these firearms will be imported, if they have not already been shipped to the United States.

On the legislative front, there have been repeated stabs at passing the “Collectible Firearms Protection Act,” although none successful. The bill would amend the AECA to allow the importation of certain curio and relic firearms into the United States by a licensed importer without the requirement of an authorization from the Department of State upon certification to the Department of Justice that such firearms are lawfully possessed under the laws of the exporting country.

The first introduction was in 2009 by Rep. Cynthia Lummis (R-WY), then again in 2011, 2013 and 2015. The most recent attempt was by Rep. Doug Collins (R-GA) in 2017; each time the bill stalled in committee. What is even more telling is the number of co-sponsors. In 2011 there were 142 co-sponsors. In 2013, the number was only 38, and in 2017 only 3 co-sponsors joined.

So as we near the start of a new Congress, where Democrats will once again control the House, the Collectible Firearms Protection Act is likely a dead issue. In the remaining two years of President Trump’s first term, it is possible he may take action to lift the prohibition against private industry from importing U.S.-origin military surplus firearms. Until then, at least this part of the market is out of reach.

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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 (reevesdola.com). For more than 15 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 (fairtradegroup.org). She has also served as a member of the Defense Trade Advisory Group (DTAG) since 2016. Johanna can be reached at jreeves@reevesdola.com or 202-715-9941.

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.

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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 jreeves@reevesdola.com or 202-715-9941.