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DDTC

Directorate of Defense Trade Controls (DDTC)

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.

Unintended Consequences

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.

Paper Cuts: The ITAR Recordkeeping Requirements

Once registered, all firms controlled by the DDTC must adopt recordkeeping requirements as detailed in ITAR subsection 122.5. This means maintaining durable change-controlled records of:

-anyone that might control technical information,

-the disposition of all "defense articles,"

-production figures,

-and a "compliance plan" so that "defense articles" are properly tracked so that they don't fall into the hands of unauthorized persons

"It's a huge document control burden," says Jason Wong of the Firearms Law Group. "While it doesn't seem bad to firearm makers that are already tracking their products, it's a major problem for ammunition and parts manufacturers."

Firms like S&W that might apply for permits with a value over $500,000 must keep durable records of political contributions, gifts, loans, offers of loans, etc. All these records, including the production figures, etc., must be made available to the DDTC or to persons authorized by the DDTC (including Immigration and Customs and Enforcement (ICE) and the Border Patrol) on request.

The lunacy of requiring accessory makers building parts for raceguns to treat their bits with the same level of control as components for the M1 Abrams tank need hardly be explained. Thankfully there is an exemption for the technical data for commonplace parts whose design information can be found "in the public domain." That gets a little iffy in cases where the design was partially financed by the government (a la anti-tilt followers for the AR-15), but for the typical USPSA-oriented accessory maker, it offers *some* relief.

Unfortunately, according to Wong, "State" has the reputation for not being what you'd call "business-friendly." Other attorneys that specialize in this area of law told us that "we'd always rather be dealing with Commerce than State." Our experience with the State Department has been positive (SV and others recommend speaking to Roy Simkins on the DDTC response team). Also, Dean tells us that the officers he has worked with have all been helpful and well-informed, if occasionally hard to reach (he once sat on hold for an hour and 15 minutes). He tells us that his vendor base says largely the same thing, with a few exceptions.

Wong's experience was different. "I'll be up front and tell you - if you don't like ATF, the State Department is infinitely worse. ATF will be reasonable when they need to be. State Department will have no compunction about putting you out of business."

Wong related the story of one ammunition manufacturer that applied to export a modest amount of ammunition (less than 10,000 rifle cartridges). The permit was denied five times - despite being destined for an obviously friendly government agency. After each denial, rather than take up the original application, State insisted that Wong's client re-file a new application with the words "maybe we'll approve it this time." He says no explanation of why the original permit was denied was ever offered.

We can only hope that Dean's experience is more the norm.

Technical Data

Another nasty wrinkle of the ITAR regulations comes in the guise of "Technical Data."

Pretend for a moment that you did business in sidewinder missiles. It's not hard to understand why the State Department would be concerned about the disposition of the technology behind them. Now apply all the security controls you might reasonably apply to the technology behind a sidewinder missile, to the manufacture of an EoTech or similar sight.

Another of Wong's domestic clients dealt with a firm that does metal injection molding overseas. "They e-mailed their tech specs to this company for bid, which then forwarded it to an offshore production facility and started making parts. They just exported the technical data, and they need a permit for that." If you work as a consultant, as many of our members do, that's often a "defense service," governed by ITAR. While we didn't discuss training specifically, training is another potential "defense services" nightmare for our top shooters.

Sound silly? One of the "enforcement actions" trumpeted by the DDTC on its website is the arrest of a man "after authorities found rifle scopes, stun guns and other prohibited items in luggage for his trip to Iran."

So What Do We Do About It?

The small domestic manufacturers, the "little guys" that are now getting roped into ITAR, weren't at the original negotiating table when the effects of this fee increase were discussed. Now that the word is out, we're not likely to get ITAR repealed, but it is reasonable to expect State to create an appropriate licensing scheme for small manufacturers, particularly those that do not export. $2,250 annually and a slough of paperwork is more than enough to crush a fledgling business - especially the small custom shops that USPSA is famous for. By adopting a reasonable base fee, DDTC can expect greater compliance with less enforcement cost, netting more revenue in the long run.

Is it really too much to ask that DDTC registration have a basic fee in keeping with a basic business license?

As Dean told us, "We've had some guys say 'I'm sorry, I can't afford to do that, I'm not going to make it anymore, delete my product from your catalog.'" Do we need clearer evidence of a negative economic impact than that?

BATF - Backing Up Toward Reasonable Governance

I feel for the guys answering the phone for DDTC, and for the BATF. Top-tier political appointees hand down a ruling, and the poor guys in the middle have to make sense of it - whether it makes sense or not.

BATF staff faced a thorny regulatory situation post 9/11, when someone decreed that anyone bringing a firearm into the United States was "importing" the firearm." (Visiting shooters no more "import" their guns than visiting drivers "import" their cars.) Hunters and USPSA competitors from Canada found themselves filling out the infamous Form 6, intended for people who really do import military hardware, which said things like "if you are importing ballistic missile technology, please use form No. ____." While ATF's posture on "importing" is still quite odd, the new Form 6a is much more appropriate, and borders on the reasonable.

Crushing small businesses with inappropriate licensing is hardly the "stimulus" that President Obama extols, neither is it a "change we can live with."

The State Department’s budget is controlled by the Senate Foreign Relations committee (controlled by anti-gunners on both sides of the aisle) and by the Senate Budget Committe, which has a few friendly faces. I urge you to send a letter to these two:

Sen. Chuck Grassley, 135 Hart Building, Washington, DC 20510. casework@grassley.senate.gov.

Senator Jim Bunning, 316 Hart Senate Office Building, Washington, DC 20510

If you've got time for a third, send that to President Obama, emphasizing the opportunity to make points with and for pro-gun Democrats like Max Baucus of Montana. It may be one of few opportunities for them to avoid an F rating from the NRA.

As they stand now, the DDTC's new rules are not about "trade," they're about "control."

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© 2009, Robin Taylor, USPSA

Robin Taylor is the assistant editor of Front Sight magazine, the official journal of the United States Practical Shooting Association (USPSA). United States Practical Shooting Association or Front Sight.