News from Reeves & Dola, LLP 
*** R|D ALERT ***

July 15, 2020



On July 10, the U.S. Department of State's Directorate of Defense Trade Controls ("DDTC") posted a Web Notice Regarding an Update to its Suppressor Policy (this link takes you to the general news and events page on DDTC's website; be sure to scroll down for the policy update on suppressors). This notice, which has received considerable attention both from firearm groups and the New York Times, reads as follows:

"Effective immediately, the Department of State has rescinded its April 18, 2002, firearms sound suppressor policy. This policy provided for enhanced guidelines for the approval and issuance of export licenses for sound suppressors and restricted their export to only official end users such as government or military entities. Henceforth, DDTC will handle suppressor exports in a manner consistent with other USML-controlled technologies. This requires that applicants must identify a specific end user.  Applications for the permanent export of hardware must include purchase documentation, a DSP-83 non-transfer and end use certificate (as suppressors are considered Significant Military Equipment under the USML), an end-user statement, and an import permit (if required by the destination country). Consistent with current licensing practices, all licenses will be reviewed and adjudicated on a case-by-case basis, and any pre-license checks or post shipment verifications will be conducted as deemed necessary and appropriate based on the totality of the circumstances of the transaction.  Standard staffing protocols within the Department and interagency will be applied as required."

It is no surprise that the web notice has elicited cheers from the firearms industry and jeers from the gun control groups. Regardless, it is important to not lose sight of the details, where the devil so often lurks. According to the notice, "DDTC will handle suppressor exports in a manner consistent with other USML-controlled technologies." DDTC goes on to explain that "all applicants must identify a specific end-user," which is a standard requirement for all other articles controlled under the International Traffic in Arms Regulations. In our request for clarification on this point in the civilian context, DDTC has advised that it will not authorize the export of suppressors to dealers or distributors without the ultimate end-user (i.e. the customers) being listed on the license and a DSP-83 executed by that individual. In other words, license applications that state "for commercial resale in NAMED COUNTRY" as an end-use/end-user will not be acceptable for suppressors.

On July 14, 2020, the President signed an Executive Order ("EO") suspending or eliminating different and preferential treatment for Hong Kong. For purposes of the Arms Export Control Act and the Export Control Reform Act of 2018, among other laws specified in the EO, Hong Kong is treated as the People's Republic of China. Pursuant to the EO, DDTC issued the following policy notice today: "Hong Kong is now considered to be included in the entry for China under section 126.1(d)(1) of the ITAR and therefore subject to a policy of denial for all transfers subject to the ITAR. The U.S. government is taking this action because the Chinese Communist Party has fundamentally undermined Hong Kong's autonomy and thereby increased the risk that sensitive U.S. items will be illegally diverted to the PRC."

DDTC's notice includes the following three FAQs (it is noteworthy that existing authorizations to export defense articles or defense services to Hong Kong are not revoked or rescinded [see FAQ #2 below]):

Q1: The EO provides that the President is terminating export licensing suspensions for exports of defense articles to certain Hong Kong persons. Are exports of defense services to those Hong Kong persons permitted? 

A: Section 902(a)(3) of the Foreign Relations Authorization Act, Fiscal Years 1990 and 1991 (Public Law 101-246, 22 U.S.C. 2151 note) prohibits "[t]he issuance of licenses under section 38 of the Arms Export Control Act for the export to the People's Republic of China of any defense article on the United States Munitions List...." As a result, the President is not required to make a determination under section 902(b)(2) of that Act in order for DDTC to authorize exports of defense services to Hong Kong persons. DDTC will review on a case-by-case basis license applications to export defense services to Hong Kong persons who (1) are physically located outside of Hong Kong or the PRC and (2) were authorized to receive defense articles prior to July 14, 2020. Exporters may continue to rely on available exemptions consistent with the provisions of ITAR ยง 126.1(a).

We refer you to the U.S. Department of Commerce for additional information on exports to Hong Kong controlled under the Commerce Control List.

Q2: I have a previously approved export authorization which names Hong Kong as a transfer territory. Is this authorization still valid?

A: Yes. Current, valid, non-exhausted authorizations naming Hong Kong as a transfer territory are not affected by the Executive Order. At this time the Department is not taking steps to revoke or rescind previously approved authorizations to export defense articles or services to Hong Kong.

Q3: Does this action apply to all end-users in Hong Kong, or just government entities?

A: In accordance with the Executive Order, Hong Kong is now treated as China under section 126.1(d)(1) of the ITAR and there is a presumption of denial for license requests where a Hong Kong person is named as an end-user, licensee (signatory) or sublicensee, or where Hong Kong appears as a marketing, transfer, re-transfer, re-export, sales, or distribution territory.

The above alert is for informational purposes only and is not intended to be construed or used as legal advice. Receipt of this alert does not establish an attorney-client relationship.

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About Reeves & Dola

Reeves & Dola is a Washington, DC law firm that specializes in helping clients navigate the highly regulated and complex world of manufacturing, sales and international trade of defense and commercial products. We have a deep understanding of the Federal regulatory process, and use our expertise in working with a variety of Federal agencies to assist our clients with their transactional and regulatory needs.

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