10 Things Trump Can Do for the Firearms Industry
By Teresa G. Ficaretta, Esq. and Johanna Reeves, Esq.
This article appeared in Small Arms Defense Journal in April 2017. Small Arms Defense Journal: V9N1
President Trump Should Use Executive Authority to Improve the Regulatory Environment for the U.S. Firearms Industry
The election of Donald Trump as our country’s forty-fifth President brings an experienced businessman and staunch supporter of the Second Amendment to the White House. Business people all over the country have high expectations the new administration will eliminate unnecessary government regulations and make it easier to operate profitable businesses. There are a number of executive actions President Trump can take to make things better for the U.S. firearms industry and improve its standing in the world defense markets. This article outlines ten specific actions the President can implement to improve the regulatory landscape for the U.S. firearms industry.
1. Permit Importation of U.S.-Origin Firearms
President Trump should revoke the policy of denying requests to bring into the United States “military-grade firearms” of U.S. origin, which President Obama first announced by way of a Fact Sheet titled, “New Executive Actions to Reduce Gun Violence” on August 29, 2013. See https://www.whitehouse.gov/the-press-office/2013/08/29/fact-sheet-new-executive-actions-reduce-gun-violence (last visited Nov. 18, 2016).
Regulations of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) require that applications to import U.S.-origin firearms be accompanied by written retransfer authorization from the Department of State (DOS). Prior to 2013, DOS had approved retransfers of U.S. origin firearms including M1 Garands, M1 Carbines, and 1911 pistols, sought for importation back into the United States. The 2013 White House directive put a halt to such importations.
The fact sheet does not offer a definition of what constitutes “military-grade firearms.” However, with the stated goal of “Keeping Surplus Military Weapons Off Our Streets,” it is clear this import ban was intended to capture all U.S. origin firearms exported overseas, whether through direct commercial sales or through the foreign military sales or military assistance programs.
What President Obama has never acknowledged is the fact that existing law already restricted importation of surplus military firearms. The Gun Control Act (GCA) permits the importation of surplus military firearms only if they are classified as “curio or relic” and are being imported by a licensed importer. To be classified as “curio or relic” firearms, the firearms must be at least 50 years old or certified by ATF or a museum curator as being of collector interest. Arguably, this pre-existing law should have been sufficient to ensure that no firearms of interest to traffickers or criminals are brought into the country for commercial sale.
There is tremendous U.S. collector interest in the WWII-era firearms that the Obama Administration has banned from being imported back into the United States. This so-called “common sense” policy should be reversed immediately.
2. Direct the Departments of State, Commerce, and Defense to Complete Export Control Reform
In 2009, President Obama directed an interagency reform of the U.S. export control system with the goal of strengthening national security and the competitiveness of the U.S. manufacturing and technology sectors. As part of this process a number of items have been moved from the U.S. Munitions List (USML), administered by DOS pursuant to the International Traffic in Arms Regulations (ITAR), to the Commerce Control List (CCL), administered by the Department of Commerce pursuant to the Export Administration Regulations (EAR). This reform process has not been completed for firearms, firearm parts, components and accessories, and ammunition, which remain regulated under the untouched Categories I-III of the USML.
It is anticipated that moving firearms and ammunition from the USML to the CCL will streamline the process for U.S. exporters to obtain export licenses, as well as eliminate the more burdensome aspects present of the ITAR, including the requirement that foreign customers and partners obtain retransfer authorization from DOS for U.S. defense articles. This, of course, would increase the competitive positioning of U.S. companies in the world market and benefit our allies, two of the key forces that have driven export control reform from the beginning. The President should immediately direct the executive branch agencies to move forward with the export control reform process and revise USML Categories I-III accordingly.
3. Streamline The Form 9 Process for Exports of NFA Firearms
Exports of firearms from the United States are subject to the license requirements and restrictions of DOS. However, to export certain firearms falling under the National Firearms Act (NFA), such as machineguns, short-barrel rifles, short-barrel shotguns, silencers, and destructive devices, one must obtain approval from a second agency, the ATF, on the Form 9 Application and Permit for Permanent Exportation of Firearms. There is no apparent reason why two federal agencies should approve the same export, but this dual licensing system has been in place for at least 40 years. Indeed, ATF will not approve a Form 9 without an approved permanent export license issued by DOS, so the process of getting approval for a particular shipment of registered NFA firearms can be lengthy and burdensome, not just for the U.S. exporter but also for the foreign customer or partner.
On August 27, 2015, the F.A.I.R. Trade Group submitted a petition for rulemaking to ATF, requesting that regulations relating to the Form 9 be amended, so it is a notice submitted following lawful exportation, rather than an application submitted prior to export. The F.A.I.R. petition (available on its website www.fairtradegroup.org) noted this change would avoid a delay of 30-60 days in getting firearms lawfully exported and end needless duplication in issuance of export licenses. The President and Attorney General should direct ATF to immediately publish a notice of proposed rulemaking proposing the amendments to NFA regulations outlined in the F.A.I.R. petition.
4. Reduce Registration Fees Imposed by State under the ITAR
The Arms Export Control Act and the ITAR require persons who engage in the business of manufacturing defense articles, including firearms and ammunition, to register with DOS, even if such persons never export. Registration fees under the ITAR are significant. First-time registrants pay a fee of $2,250 per year. Compare this to the fees ATF collects for issuance of a manufacturer’s license under the Gun Control Act, which range from $50/year for firearms other than destructive devices to $1,000/year for manufacturers of destructive devices.
On May 24, 2016, the F.A.I.R. Trade Group petitioned the State Department to amend the ITAR registration fee structure to create a flat, per-license application fee that applies equally to all sectors of the industry. The petition is available on the trade group’s website at www.fairtradegroup.org. The White House should direct the Secretary of State to immediately review and reduce the registration fee structure to create a more transparent and level playing field.
5. Direct the Department of State to Discontinue Congressional Notification for Parts and Components of Firearms Parts
The Arms Export Control Act requires the President to notify Congress of license applications for commercial exports of defense articles exceeding certain dollar thresholds. For defense articles that are “firearms” controlled under Category I of the United States Munitions List, the value is $1 million or more. The $1 million threshold for firearms is well below that applicable to other defense articles, which range from $14 million-$100 million depending on the article and location of the end user. Export licenses requiring congressional notification can take 3 to 9 months in addition to the normal processing times. Such delays are extremely burdensome on industry and our allies, and weaken our standing in the world marketplace as foreign customers choose non-U.S. sources for firearms.
DOS has taken a broad view of what constitutes a “firearm” requiring congressional notification, expanding the term to include certain parts or components for firearms. State’s broad interpretation is at odds with the definition of “firearm” in the ITAR and guidelines published on the agency website.
In an advisory opinion dated October 27, 2016, State’s Directorate of Defense Trade Controls provides a nonsensical justification for this position. Rather than pointing to a clear requirement in either the statute or its own regulations, DDTC relies solely on prior legal and policy review and a “long-standing practice” of notifying Congress to support its interpretation that the $1 million threshold applies equally to parts and attachments listed in USML Cat. I paragraphs (e), and (g). DDTC does not articulate what the prior review entailed, and does not address the fact that such interpretation is in direct conflict with the regulations. DDTC does explain, however, that the statutory requirement to notify “firearms” valued at $1 million or more could “reasonably be interpreted” to extend to firearm parts, components and attachments identified in USML Cat. I(e) and (g) because of the “treatment” of the term “firearm” in other statutes and regulations.
State has failed to articulate any public policy requiring congressional notification for firearms parts and components. Requiring this lengthy process for firearms parts delays shipment of repair and replacement parts to allies who have already received shipments of U.S. firearms approved by State. DOS should be directed to immediately discontinue the practice of requiring congressional notification for export of firearm parts and components totaling $1 million or more.
6. Revoke and Replace State’s Guidance on Registration for Firearms Manufacturers
On July 22, 2016, DOS published guidance addressing the registration requirements of the ITAR as they relate to gunsmithing activities. The guidance addressed differences in activities DOS believes are manufacturing, which requires registration under the ITAR, and gunsmithing, which does not require registration. Unfortunately, the guidance turns the concept of firearm manufacturing on its head, stating that any operation using special tooling or equipment to improve the capability of assembled or repaired firearms is manufacturing. The guidance also indicates that threading of muzzles or installation of muzzle brakes, operations frequently performed by licensed dealers, is manufacturing that requires registration. Blueprinting of firearms is also included as an example of an operation that requires ITAR registration.
DOS guidance requires many small machine shops and gunsmiths to register under the ITAR and pay the significant registration fee. There is no public purpose served by the registration requirement, as all these businesses are already licensed under the GCA.
The Trump Administration should direct the Secretary of State to revoke the July 22, 2016, guidance and issue new guidance that is more consistent with established understanding of what constitutes firearm manufacturing.
7. Allow Licensed Manufacturers to Transfer Registered Machineguns to Other Qualified Manufacturers
Prior to 2014, ATF authorized qualified manufacturers of machineguns to transfer registered machineguns, including frames or receivers, to another qualified manufacturer. Authorization was granted through variances issued by ATF’s Firearms Technology Branch. The system worked well for the industry, as it is often necessary to transfer registered receivers to another manufacturer for heat treating, coating, or another manufacturing process. Transfers were accomplished through Form 3 transfers, and a copy of the variance issued by Firearms Technology was submitted with the transfer application.
In 2014, ATF issued ATF Rul. 2014-1 revoking all variances that authorized manufacturer-to-manufacturer transfers of registered machineguns. The ruling announced the position that 18 U.S.C. § 922(o) prohibits such transfers unless there is specific written authorization from a federal, state, or local government agency authorizing the transfer. Members of the industry advise it is very difficult to obtain government contracts that specifically authorize such transfers.
In the 2014 ruling, ATF recognized the need for more than one manufacturer to be involved in the manufacturing process and noted that an unlawful transfer can be avoided if an employee of the registrant maintains continuous custody and control of the machineguns while they are at the premises of the second manufacturer. This type of “babysitting” is extremely costly for manufacturers, but it is the process many use for getting machineguns manufactured without violating the law.
ATF officials, when questioned about the necessity for issuing ATF Rul. 2014-1, have been unable to articulate any law enforcement basis for imposing restrictions on manufacturer-to-manufacturer transfers. The only reason ATF has provided publicly is that lawyers at the Department of Justice believe this is the only permissible reading of section 922(o). The authors believe the statute can be interpreted to authorize transfers between qualified manufacturers if the machineguns are destined for federal, state, or local government agencies or for export. As ATF authorized this practice prior to 2014, it is clear personnel within the agency believed it was permissible under the law.
The new White House and Department of Justice should revisit the issues addressed in ATF Rul. 2014-1 and supersede or overrule it. The ruling imposes significant costs on manufacturers of machineguns and serves no apparent law enforcement or public safety purpose.
8. Direct the Department of the Treasury to Provide More Resources to the Alcohol and Tobacco Tax and Trade Bureau
Manufacturers and importers of firearms and ammunition are subject to a 10-11 percent federal excise tax on the sale of their products. The tax is collected by the Treasury Department’s Alcohol and Tobacco Tax & Trade Bureau (TTB). In the fiscal year 2015, TTB collected over $638 million in excise taxes from the firearms and ammunition industries.
In addition to its responsibility to collect firearms and ammunition excise tax, TTB responsibilities include collection of federal tax on alcohol and tobacco and administration of the Federal Alcohol Administration Act. This is a lot of responsibility for a tiny agency with just over 500 employees nationwide.
Members of the firearms industry have been complaining for years that it is virtually impossible to get guidance from TTB on the complex rules relating to firearms excise tax. It is not uncommon for written requests for guidance to take 6 months to a year for a response. This is an untenable situation that cannot continue if industry members are expected to accurately calculate and timely pay excise tax. The Secretary of the Treasury should be directed to provide TTB with more resources dedicated to firearms and ammunition excise tax.
Alternatively, the new Secretary of the Treasury should consider re-delegating administration and enforcement of firearms and ammunition excise tax to the Internal Revenue Service, the agency responsible for this tax from 1918-1991.
9. Direct ATF to Implement Reliable and Efficient e-Forms
ATF has an e-Forms system industry members may use for some, but not all, of the agency’s firearms-related forms. ATF’s e-Forms system is down at least one day per week for maintenance. Even when the system is up, it is slow and cumbersome to use. A significant number of licensees opt to submit ATF applications in hard copy rather than through e-Forms because of the time required for employees to navigate the slow, unreliable system. When forms are submitted in hard copy, ATF data entry contractors must input all the information from the forms so they can be processed. This slows down processing and may result in data entry errors. The unreliability of ATF’s e-forms system and the fact it is not available for all firearms forms is one of the reasons some National Firearms Act (NFA) forms take over 6 months to process. These delays often result in late delivery of essential equipment to law enforcement agencies within the U.S. and abroad and make consumers wait for months to get firearms that are legal for them to possess.
ATF’s regulatory forms processing suffers in comparison to the Departments of State and Commerce. State and Commerce will not accept hard copies of their applications for export licenses and other authorizations. All forms must be submitted via their on-line systems (SNAP-R and D-Trade), which are rarely down and easy and efficient to use. State and Commerce have personnel available to answer questions about e-Forms and assist industry members in using them. State and Commerce recognize the importance of customer service and put considerable resources into the software and hardware necessary to maintain their e-forms. Forms processing times for Commerce and State are significantly less than those of ATF.
ATF officials have promised upgrades and improvements to their e-forms for the last 5 years, but very little has changed. In 2015 ATF officials announced discontinuance of funding for e-Forms, as the agency’s top priority for its IT budget is an agency-wide case management system.
President Trump and the new Attorney General should direct ATF to commit funding to upgrade and maintain its e-forms system. The system needs to include all forms required for administration of the Gun Control Act, National Firearms Act, and Arms Export Control Act. ATF also needs to establish a help desk to assist members of the industry who use the system. ATF’s budget is well over $1 billion annually, and the agency should be able to reprogram funds to cover this expense. The firearms industry needs and deserves customer service from ATF commensurate with the level of service they get from State and Commerce.
10. Consider Another Amnesty Period
Last but not least, the President should direct the Attorney General to study the legal and policy issues raised by declaration of another firearms amnesty period. The Attorney General has authority to declare an amnesty period allowing possessors of firearms regulated under the NFA to register them. Allowing owners of such firearms to register them with ATF would get more firearms out of the attics and basements of our country and accounted for in accordance with the law. Many valuable firearms of historical significance could enter commerce and be displayed and used in accordance with law.
The Department of Justice should be directed to review the legal and policy issues relating to declaration of another amnesty period and provide options for the administration on this important issue.
The executive actions identified in this article are clearly within the authority of the new administration and involve issues that have a significant impact on the firearms industry. We urge President Trump and his Administration to seriously consider implementing these initiatives to improve the regulatory environment for this essential segment of the defense industry.