H/T Pat Dollard.
Article by Robin Taylor, courtesy of the US Practical Shooting Association. Taken from the May/June 2009 issue of Front Sight Magazine.
Directorate of Defense Trade Controls (DDTC)
It’s not about Trade, it’s about Control
By Robin Taylor, USPSA Staff
If you’re lucky, you have never heard of the “International Trade in Arms Regulation” treaty, or ITAR. Administered by the State Department through something called the Directorate of Defense Trade Controls (DDTC), this treaty is supposed to keep track of “defense” exports. Unfortunately, what you don’t know is about to hurt you.
DDTC’s ITAR process hummed along out of the public view for years, focusing on the major international trade in firearms and military equipment until President Bush II moved to make the directorate 75 percent self-funding. In one fell stroke, he gave the agency the power to set its own budget, and levy its own taxes.
The results have been predictable. New rules published on Sept. 28, 2008 explosively increased fees.
Furthermore, DDTC has expanded its tax base to include all “arms” trade in the United States. Civilian firms with no military or export connection whatever are getting ominous letters from their wholesalers (Brownells sent a letter to all its vendors) asking if they are “in compliance” with the mysterious ITAR.
Subsection I(a) of the ITAR includes all firearms, barrels, “military” scopes, and all “components, parts, accessories and attachments” for any listed item. Subsection III includes manufacturers of ammunition, bullets, and technical data for the production of the above. If you cast bullets at home and sell them to your neighbors, you need to file with the DDTC. However, your Dillon press is exempt.
Flipping through the pages of Front Sight, “cartridge cases. . .bullets,” “firearms,” and “accessories and attachments” to firearms takes in pretty much our entire advertising base. We checked, and the magazine extensions USPSA competitors use have been ruled a “defense article” and all manufacturers of same must register with DDTC. The C-More optical sight? Tubes for a 170mm magazine? Moon clips for a revolver?
As best we can tell, every advertiser in this magazine other than Dillon and a few soft goods firms must register and be tracked as a “manufacturer” or “broker of defense articles” under DDTC’s purview.
If you don’t think that affects your ability to exercise your second amendment rights (albeit indirectly), or to enjoy shooting, take a minute and think about it. ITAR calls for government registration of all arms manufacturing. Not only will the government know exactly who makes how much of what, should the government decide NOT to issue a registration permit to any of those people, they’re out of business, immediately.
Basic registration has climbed from a few hundred dollars for a multi-year registration four years ago to $2,250 per year. Fail to pay this, and you risk federal prosecution. Should you actually export, the fees climb dramatically.
“For that money you get absolutely nothing,” says Jason Wong of the Firearms Law Group. (Wong advises clients including Sig Sauer, U.S. Ordnance, and Gemtech on compliance with federal firearms laws and export controls, including the International Traffic in Arms Regulations (ITAR).) “I don’t mind paying my taxes, because that goes to pay for schools and roads and stuff, but this is something else.” While we know of a few accessory makers (of grips) that have been given a pass on registration, according to Wong, they’re the exception.
“It’s not just us,” said a representative from an accessory catalog. “I went to a Commerce Department training session and State Department reps came on one day. They said they’re targeting every company in every industry, so that they will know everyone involved before it’s all over.”
Airplane components, computer chips, optics for anything from night vision to missiles, thanks to the “accessories” clause, DDTC’s reach is astoundingly broad.
“Every industry group has this same complaint,” said our catalog representative. “The only way we can know if something is covered is to get a (State Department) ruling on it.”
Until recently, the whole ITAR process operated in a sort of “don’t ask, don’t tell” manner. If you built non-military parts and didn’t export, nobody at “State” really cared. Looking at it from a bureaucratic point of view, registering the little fish cost them time and money, and for what? Now that DDTC relies on registration to fund itself, that situation has changed.
“Now nobody says anything because they’re afraid. They know if they stand up, it’ll cost them $2,250 a year,” said an accessories maker that chose to remain anonymous. Some not-so-friendly competitors notified DDTC that his firm was making parts without a permit, and the hammer fell.
2008’s Year-End Surprise
Under its new rules, DDTC collects its registration fees at the end of the year, using a sliding scale depending on how many export licenses you requested. If you didn’t get the memo (”it was on the website. . .”), that means you pay for each of last year’s licenses when you renew your ITAR registration. Licenses that were almost free now cost $250 each.
I spoke with Dave Skinner at STI about their experience with the DDTC’s escalating fees. Almost half their business is with overseas clients.
“In three years (the changes) took us from $750 per year, to $1,750, to $18,500 per year in export costs.”
Pauletta Skinner handles most of STI’s export operation. She renewed STI’s registration early, fearing another doubling in fee prices akin to 2006-2007. Instead, the 2008 fee rose by one thousand percent - 10 times the previous year’s fee. “I couldn’t believe it,” she says. “I called them back because I thought it was a typo.”
Apparently DDTC put the change on their website, but didn’t notify registrants directly. When the bill came, STI was caught short. With no way to back up and pass the costs on to the customer, STI faced an ugly choice: Write a check for an extra $16,000, or cease operations immediately.
“We’re still reeling at the increase in costs,” says Dave Skinner.
Now put yourself in the shoes of Brownells, parts resource for gunsmiths worldwide. Brownells has a staff of five to deal with permitting issues for their international shipments. Huge swaths of their 36,000-item catalog are controlled by ITAR.
“We would have been happy with only that kind of a jump,” said David Dean when I asked about STI’s $16,000 surprise. “We do hundreds and hundreds of licenses, but I can’t give any details about the proposed fee since this issue is still being negotiated.”
Each foreign order over $99 for controlled items requires an export license from DDTC. For a company whose international business is likely in the millions, that’s a lot of permits. Brownells is still running under what was a two-year registration. They paid the new base fee to keep their registration alive, but that huge per-permit fee hangs like an axe over their business model. As Dean explained, even under the new rules, there are several possible ways to calculate fees. There is a “3 percent of value” option, but according to Sandy Strayer at SV, even the top hands on the DDTC response team weren’t sure how to calculate it.
Hence the protracted negotiations. If Brownells is lucky, they’ll “only” have to pay 3 percent of their export gross to the State Department.
While the registration end of this is problematic, that’s just the beginning.
Read the continuation here: Paper Cuts: The ITAR Recordkeeping Requirements