Export Control Reform and the Ammunition Industry

When Export Control Reform (ECR) takes effect in 2019, sporting ammunition will accompany non-automatic and semi-automatic firearms on their journey from the International Traffic in Arms Regulations’ (ITAR) to the Export Administration Regulations (EAR). Ammunition that is primarily non-military in nature will be classified under Export Control Classification Number (ECCN) 0A505 of the Commerce Control List (CCL), rather than Category III of the United States Munitions List (U.S.M.L.).

What will that change mean for exporters of ammunition (other than the need to learn new acronyms)?

Two consequences of ECR for ammunition exporters stand out. First, U.S. exporters of sporting ammunition will be able to ship to 34 countries without a license. That’s the good news. The second major consequence, the not-so-good news, is that determining which ammunition is controlled by the EAR and which by the ITAR will involve some analysis and may sometimes require an official government determination.

Ship ammunition and components to 34 countries without a license!

Exporters of ammunition that migrates from the ITAR to the EAR will enjoy one big benefit that exporters of firearms will not. Ammunition exporters will not need any export license at all to export ammunition or components to the following countries:

In contrast, exporters of firearms will require an export license for exports to all countries. Exports of firearm components will generally require an export license, too, with exceptions for low value shipments ($500 of less) of most parts and a few other exceptions.

So, how is it that ammunition will be exempted from licensing for these 34 countries, but firearms will not? Just as the ITAR contain certain limited exemptions from licensing requirements, the EAR contain what the EAR refer to as “exceptions” to licensing requirements. EAR exceptions are different from ITAR exemptions so one of the headaches associated with transitioning from the ITAR to the EAR will be learning how EAR exceptions affect exports that otherwise would require a license.

The affect that the Strategic Trade Authorization (STA) exception has on licensing requirements for ammunition and components demonstrates that it will often be worthwhile to endure the headaches. The STA exception is quite complex, with many limitations and conditions, but what it does is carve out a list of countries with respect to which the otherwise applicable requirement for a license does not apply. The countries listed above are referred to in the EAR (along with Canada and Argentina) as “Country Group A-5.”

Exporters of ammunition and ammunition components who rely on the STA exception to export product to these destinations without licenses are required to comply with detailed conditions with respect to which there will be a one-time learning curve, but it will be worth it. The ability to export without a license is a big deal.

License exception STA can be found in §740.20 of the EAR. The most important conditions are contained in subsections §740.20 (c) and (d). All applicable conditions and limitations must be complied with to use this license exception.

Some readers may be wondering why Canada is not on the list. Canada and Argentina actually are included in Country Group A-5 but license exception STA cannot be used for exports of ammunition and components to those countries because Canada and Argentina are parties, as is the United States, to a treaty among members of the Organization of American States that requires an export license. That treaty takes precedence over exception STA.

Determining whether ammunition is controlled by the ITAR or EAR may not always be easy

To take advantage of license exception STA and the other benefits of the EAR export-control regime, exporters will first have to be sure the ammunition they plan to export has in fact migrated from the ITAR to the EAR.

That may take some work.

One benefit of today’s rules is that classifying ammunition for export control purposes is easy. Virtually all ammunition up to .50 caliber is controlled under Category III (a) of the U.S.M.L. and ammunition components are in Category III (d).

Under Export Control Reform, the Government has endeavored to distinguish between ammunition that “has little or no civil use or that is inherently military,” on the one hand, and ammunition that, on the other hand, “does not confer a military advantage on the United States” because it is widely available in the international market to both friendly and unfriendly countries. The result is a new, long list of characteristics that cause ammunition to remain on the ITAR and a second long list of ammunition components that remain on the ITAR. All other ammunition and components move by default to the EAR.

As will be the case for manufacturers and exporters of firearms, Export Control Reform will require that those who manufacture or export ammunition or components review their product lists carefully to determine whether any of their products will remain on the ITAR and, if so, their proper classification within the revised U.S.M.L. Category III. Items that are not covered by the revised U.S.M.L. Category III will fall into new ECCN 0A505, except for some items that will continue not to be controlled, as discussed later.

Going forward, after the effective date of ECR, ammunition manufacturers and exporters will want to be sure that all new ammunition and components they make or export are added to the product matrix and properly classified. It will not be possible to complete export documents properly without proper classification, nor will it be possible to use the STA exception without knowing for sure that the items in question are in fact in ECCN 0A505 rather than U.S.M.L. Category III.

Other consequences of ECR for manufacturers and exporters of ammunition and components

Manufacturers and exporters of ammunition and components that move to the EAR will enjoy, in addition to access to license exception STA, certain benefits of ECR we discussed previously in our previous post How to Make International Sales Happen Faster under Export Control Reform. In other words, (i) receipt of customer purchase orders will not be a precondition to applying for export licenses, (ii) other license supporting documents under the ITAR will no longer be needed (although exporters will need to be in possession of the customer’s import permit when an import permit is required by the destination country), and (iii) blanket licenses that authorize the maximum, but not the precise, quantity to be exported will be permitted for ammunition exports as for firearms.

On the negative side, the license exception for low-value shipments of ammunition components to countries not in Country Group A-5 will max out at $100 per shipment, as opposed to the new $500 exception that will apply to nearly all firearms components. There will be no exception for complete ammunition (as opposed to components), which rules out the possibility of small international retail sales of ammunition.

Shotgun ammunition and certain components, which are already on the EAR, will be classified together with ammunition for non-automatic and semi-automatic firearms, but will for the most part remain unchanged.

We have noted one other change that we have not had time to fully analyze as of the date of this piece. Under the ITAR, “muzzle loading (black powder) firearms” are expressly excluded from U.S.M.L. Category I and ammunition for muzzle loading firearms is therefore excluded from U.S.M.L. Category III. The muzzle loader exclusion under the new rules is narrower. Note 1 to proposed new ECCN for non-automatic and semi-automatic firearms, ECCN 0A501, affirms that muzzle loading black powder firearms are excluded, “except those designs based on centerfire weapons of a post 1937 design (emphasis added)”. What that means is that ammunition “specially designed” for muzzle loading firearms based on centerfire weapons of a post 1937 design will be subject to the controls of the EAR in ECCN 0A505.

How can Orchid Advisors help?

Orchid Advisors, the #1 provider of regulatory compliance solutions to the firearms and ammunition industry, is working to help the industry learn how to use ECR to do international business and other affected activities more easily and efficiently than they can today.

Orchid’s ITAR / EAR Practice helps companies in the firearms and ammunition industry (i) sell firearms, ammunition, components and accessories to foreign customers, (ii) build sustainable export compliance programs, and (iii) design, source and manufacture firearms, components, tools and accessories outside the United States.

Look to Orchid Advisors to help you take command of the new ECR export environment in the following ways:

• Formulation of EAR-driven international sales and sourcing strategies
• Technology solutions for reducing the cost and increasing the speed of export license determinations, license preparation and related activities
• Preparation of export licenses and provision of other “export compliance department” services on an outsourced basis
• Product and technology re-classification, compliance program revisions, training
• Practical advice on making near-term decisions under the ITAR that will be affected in 2019 by the new rules
• Development of integrated export and ATF compliance solutions for transitioning to the post-ITAR world.

Other Articles of Interest

• Retail Sales Will Benefit From Firearms Export Control Reform
• How to Make International Sales Happen Faster Under Export Control Reform
• Collaborating with Foreign Partners will be Easier Under Export Control Reform
• Do you Know What Export Control Reform (ECR) is?
• Announcement on Export Control Reform
• Onsite ATF and ITAR Training
• 5 Common ITAR Violations You Might Not Know About
• Build My Firearm Export Compliance Program
• Are you Registered with DDTC?