Featured Are Gunsmiths Screwed? Matt Stagliano January 9, 2017 Join the Conversation Bureaucratic Maneuvering Could Spell Doom for Some Small Businesses Many of us think of gunsmiths as shop-dwelling wizards who wield math and machines to repair and customize treasured firearms. But are they manufacturers? In a recently released clarification of regulations, the government seems to think so. This distinction comes with an expensive fee that could drive many smaller ‘smiths out of business and change the landscape of the custom firearm industry. “If you take your car to an auto mechanic to put new tires on, they are an auto mechanic; they are not General Motors. A manufacturer is not a gunsmith and a gunsmith is not necessarily a manufacturer. We think they [the Directorate of Defense Trade Controls] have far exceeded the statutory definition that Congress has provided. But this has been a long standing issue with the DDTC.” That's how our recent conversation with Larry Keane began. Keane is the senior VP, assistant secretary, and general counsel for the National Shooting Sports Foundation. He has been one of many folks leading the charge against the DDTC's recent guidance released in the summer of 2016 that all but lumped every gunsmith into the category of “manufacturer,” thereby forcing them to potentially change their gunsmith classification and pay large fees just to continue doing business. ATEi's Doug Holloway is known for his trigger improvements in the Smith & Wesson M&P line of pistols. Many people have obtained a Federal Firearms License issued by the Bureau of Alcohol, Tobacco, Firearms and Explosives in order to help educate those around them, pursue their passion, and maybe turn a little profit. A typical FFL license is a Type 01 or 02, your basic dealer, gunsmith, or pawnbroker. A Type 07 FFL is the more involved license for manufacturing firearms. Even under a Type 01 FFL, there's latitude for general gunsmithing — cerakoting a gun for example. An 07 allows for manufacturing of new or specific parts. Which is why the guidance issued by the DDTC, part of the U.S. Department of State, in July 2016 seemed to catch many folks by surprise. In one sweepingly confusing motion, DDTC seemed to rewrite the common understanding of what it meant to be a manufacturer of firearms parts. Gunsmiths everywhere, especially the Types 01 and 02, were immediately affected by the vagaries of the wording. Under Keane's counsel, the NSSF has been one of the most vocal organizations trying to clarify the DDTC regulations, which have actually been in place since 2008. Some believe that it was the constant requests by the NSSF for clarification that drove the DDTC to issue the new guidance and cause the recent uproar. According to the NSSF, the DDTC issued its guidance with the intent of clarifying who's required under the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR) to register with the U.S. Department of State as a manufacturer of defense articles, and pay an annual $2,250 registration fee. Under the law, registration is required even if the manufacturer doesn't export and even if the manufacturer only makes component parts. DDTC asserts that the guidance merely restates existing DDTC policy and interpretation of the AECA and ITAR manufacturer registration requirement. Let's restate the major point: “Under the law, registration is required, even if the manufacturer does not export and even if the manufacturer makes component parts.” According to the reworded DDTC guidance, under ITAR the lines are significantly blurred regarding what constitutes a violation in manufacturing. While ITAR typically relates to “defense articles” or “defense services” that are military grade, they rarely involve a local gunsmith performing a trigger job. So let's start at the root. What does ITAR actually consider applicable laws for manufacturers and gunsmiths? Gunsmiths must be meticulous record keepers to comply with BATFE regulations and stay out of trouble. Holloway logs the serial number of a client's gun. §122.1 Registration requirements. (a) Any person who engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services is required to register with the Directorate of Defense Trade Controls. For the purpose of this subchapter, engaging in the business of manufacturing or exporting defense articles or furnishing defense services requires only one occasion of manufacturing or exporting a defense article or furnishing a defense service. Manufacturers who do not engage in exporting must nevertheless register. By that umbrella definition, if a gunsmith is not actually manufacturing any parts that go into a gun, they should be in the clear, right? Not necessarily, because the word “manufacturing” isn't clearly defined and therefore may be interpreted to mean many different things. If your gunsmith recreates a hard-to-find piece for your rare 1940s-era handgun, is that covered under ITAR? Further on in the guidance, the DDTC notes that registration is not required in instances where the assembler or gunsmith isn't performing services that “require cutting, drilling, or machining,” or that “improve the accuracy, caliber, or other aspects of firearms operation beyond its original capabilities.” For example, adding scope rings or new sights doesn't increase the inherent accuracy of the gun, but it assists the shooter by increasing accuracy. The DDTC's latest guidance outlining actions that define a manufacturer, requiring registration with the U.S. Department of State and the payment of a hefty fee: a) Use of any special tooling or equipment upgrading in order to improve the capability of assembled or repaired firearms; b) Modifications to a firearm that change round capacity; c) The production of firearm parts (including, but not limited to, barrels, stocks, cylinders, breech mechanisms, triggers, silencers, or suppressors); d) The systemized production of ammunition, including the automated loading or reloading of ammunition; e) The machining or cutting of firearms, e.g., threading of muzzles or muzzle brake installation requiring machining, that results in an enhanced capability; f) Rechambering firearms through machining, cutting, or drilling; g) Chambering, cutting, or threading barrel blanks; and h) Blueprinting firearms by machining the barrel. If you look closely at the DDTC's defining list, you'll see many of the generally common tasks performed by a local gunsmith, such as threading of muzzles or blueprinting precision gun actions, would now be the basis for registration as a manufacturer. At this point you may be saying, “Now what? Am I gonna get my gun fixed or not?” Machinery at the ATEi shop in Michigan Dave Laubert is a member of the American Pistolsmiths Guild and owns Defensive Creations based in Ohio. With a lifetime of machine shop experience behind him, Laubert has been a successful gunsmith since 1999. “It's a very big problem,” he says, “This law has been in place since 2008, however, [the DDTC] never had a clear definition of what manufacturing was. It doesn't make a difference if you're importing or exporting or not. I've talked to several other gunsmiths around the country. Many of them are now complying with [the regulations] and jacking their price up to accommodate it. “Something that I don't think a lot of people are paying attention to is the trickle-down effect that is going to affect the entire industry. It's not going to affect just gunsmiths.” As gunsmithing services become more expensive, he believes that it'll also influence what gets purchased, such as custom-fit pistol barrels. Having to spend an additional $350 in labor to fit a $150 part puts many services out of the reach of the average consumer. That begins to affect component manufacturers and reduces availability of certain parts. It's a vicious cycle. “Nobody is paying attention yet to that bigger picture,” Laubert warns. With this guidance, it's not just the paperwork overhead imposed on the small FFL shop, it's the costs. New applications for manufacturers are currently $2,250 per year, increasing to $2,750 annually thereafter. That means your local gunsmith needs to pay thousands of dollars more to keep his doors open, even though he isn't exporting any products and may just be threading a barrel or two every few months. That's a large burden for simple services. David McKeeby, a spokesperson for the U.S. Department of State, says the guidance, as issued, should be nothing new to gunsmiths. However, he can understand the potential for confusion that comes with the new guidance. “The document consolidates existing guidance issued by DDTC in advisory opinions on these matters over the years.” McKeeby explains the consolidated guidance “demonstrates our commitment to improving the clarity and transparency of DDTC's regulatory requirements and reflects our broader commitment to strengthening national security by protecting sensitive U.S.-origin defense technologies.” Dave Laubert of Defensive Creations ATEi machining-Jedi, Doug Holloway, gave us a predictable profanity-laden rant about the very nature of these regulations. Does he think that every gunsmith in the country is going to comply with the rewritten regulations? “Like anything, it is going to run the gamut,” Holloway says. “You're going to have both extremes: The guys who say ‘screw you' and the guys who say ‘I'd better pay this' — and then you have the rest of the folks that are in a holding pattern not knowing what to do.” One of the biggest issues that Holloway and others note is the uncertainty of the DDTC's future actions. Will it go after gunsmiths for retroactive payments? That could be crippling for suddenly reclassified shops that have been doing barrel threading and action work for the last 15 years. If they don't pay the retroactive fee, the owner of the shop could face millions in fines and possible jail time. “They have us under their thumb,” Holloway adds. “There's nothing we can do about it. And it's all opinion.” “If there was some level of amnesty for back pay, and they said ‘as long as you start paying now, we forgive you,' most people would sign a f*cking check today,” says Holloway, “It's extortion, plain and simple. This is a registration fee. Why isn't it a $20 f*cking fee?” Adam Kraut, ESQ, of Prince Law Offices in Pennsylvania has been trying to clear up any confusion surrounding the rulings by writing white papers in the hope of educating as many people as possible. “Ignorance of the law is not an excuse,” Kraut says. “DDTC can destroy your livelihood. The penalties are astronomical. And the trickle-down effects are absolutely a possibility because now you have a new cost for a lot of people that may cause them to go under.” Like everyone else we spoke to, Kraut has a hard time predicting the future. He believes everyone wants to play by the rules, but the rules are still somewhat vague — and uncertainty breeds fear. “I think some of the fears that a lot of guys have is registering and then having someone come back and look at their business and saying, ‘We've seen that you registered and that's great, but we also see that you've been in business for the past 15 years, and that you've been doing this [type of service] all along, and now we're going to levy penalties.” Attorney Adam Kraut of Prince Law Offices (Photo courtesy of Adam Kraut) Despite the financial challenges now facing gunsmiths, people are still getting into the business, hoping to cash in on the constantly increasing demand for guns and services. Nate Maillet of First Due Firearms in Sabbatus, Maine, grew up around his dad's machine shop. Providing high quality AR-15 builds has been a dream for years. He's now busy getting his brand-new shop off the ground. “I have my 07 and I will eventually register once I start providing those specific services.” Maillet says. “But with starting up the business, that's not a cost I can afford and will have to stay away from [those services] for now. Maillet was originally going to apply for a Type 01 FFL to do basic gunsmithing and then upgrade to an 07 for manufacturing once business was stable and flowing. He has no desire to import or export. At the advice of his BATFE Industry Operations Investigator, the people who interview FFL applicants, Maillet filed for the 07 straight away. However with the new version of the DDTC guidance, his previous plans for manufacturing services have been put on hold until he can afford the yearly registration. His entire business plan had to be rewritten to accommodate it. “There's a difference between a company like Glock importing thousands of parts and a small shop that threads a barrel here or there. I can't even collect $100 from someone to do that threading service without now paying thousands in registration fees.” So is there some sort of long-term play by the current administration to take us one step closer to gun control, with an assault on gunsmiths as the first step? Kraut thinks so. “[Gun control] will happen through attrition, and it will be death by a thousand cuts, and this [guidance] is just one of those cuts,” Kraut says. “Maybe they'll be taxing ammo next week, and now you can't afford ammo, and then the week after that they tax something else. It will be something more like that.” Maillet agrees. “Who knows what they'll do. They can go after my insurance at some point and make it so I can't run my business here, and now I have to build a new building. That's money that could have gone directly into inventory. It's a drag.” The Road Ahead Does the Department of State have the manpower to track down members of the Barrel Threading Mafia in Smalltown, USA? After speaking with the DDTC, we certainly didn't get the impression enforcement teams are rolling out to your neighborhood to check what types of gunsmithing is happening in your community. That said, if you were a gunsmith, would you be willing to risk it? Keane pulls no punches as he discussed the regulations. “This all stems from the absurdity of including commercial sporting firearms on the United States Munitions List (USML),” Keane says. “We have been trying for years to get firearms and ammunition and commercial sporting firearms that are available all over the world off of the USML and let them be licensed for export by the Commerce Department and that's part of the Export Control Reform Initiative. We've been working this issue for eight years.” Some politicians like Congressman Steve Scalise are helping. Scalise introduced a bill on September 27, 2016, called House Resolution 6176, the Export Control Reform Act of 2016, which, “if enacted, will transfer export licensing for commercial products from State to Commerce.” Nate Maillet of First Due Firearms checking the battery connections in an RMR. According to Keane, this would streamline the licensing process, provide greater flexibility for multi-year licensing, and save gunsmiths and all manufacturers $2,250 a year. All this, and it'll allow the State Department to focus on tracking the production of more consequential military hardware, such as major weapon systems, chemical and biological agents and other platforms crucial and unique to the defense of the United States. According to Keane, there are 21 categories on the USML. All have seen adjustment, or are getting edited now. “The only three categories that have not seen any progress are ours,” says Keane. “They are not going to move those categories, and even if they did there's not enough time for them to be moved by the end of the year.” Of course, we take all of this positive work toward Export Control Reform with a back-breakingly large grain of salt. This bill is just more regulation to counter the regulations that are subparts of other regulations. Throwing paper at problems caused by other paper tends not to be a good long-term solution, and we expect a healthy debate to continue around the issue. Keane's final guidance maintains a sense of urgency. “Every gunsmith in America needs to pick up their phone and call their congressman and senator and say ‘You need to support and pass the Export Control Reform Act.'” The LeBlond Regal Lathe is a machine tooling heavyweight and can cost thousands of dollars. This vintage model at First Due Firearms is considered priceless for its build quality and versatility in applications well beyond gunsmithing. Money spent on regulatory compliance are dollars gunsmiths won't spend on tools they need to build their businesses. Contrary to what you may believe, we don't see the future of gunsmithing as bleak. Maillet's story is proof of that. If the new guidance does stand, we expect it'll be harder to get a 700 action barreled. On the flipside, long wait times for gunsmithing work will provide an opening for enterprising members of industry to bring new, modular firearm designs to market, diverging from pre-Atomic Age hardware requiring depot-level maintenance with a human touch. The fact is that regulations, fees, and vague language are part of this country's political norm, and there's no expectation that'll ever stop. What we can do to combat that norm is analyze the problem, be more forward thinking, adapt, and overcome. As the confusion around this guidance dies down, the gun control debate rages on, giving us all a reason to pick up a few more blasters while we can. For that fact alone, good small town shops and gunsmiths will continue to thrive. EDITOR'S NOTE: Since this article was reported in October, the political landscape shifted, though the core issue remains. RECOIL reached out to the NSSF, asking if its outlook on reversing or altering the DDTC's guidance has changed, post-election. In brief, they explained the problem remains, but the tactics available to address the issue have expanded. “We can and will now pursue both a legislative and regulatory solution,” Keane said in December, “whereas under the Obama Administration a regulatory solution was foreclosed to us.” Explore RECOILweb:Pistol Bayonet! 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