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.
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
"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
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
"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,"
-and a "compliance plan" so that "defense articles"
are properly tracked so that they don't fall into the hands of
"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*
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.
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. email@example.com.
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). www.uspsa.org or www.frontsightmagazine.org.