International Legal Affairs: Volume 5, Number 3
A Discussion About Current U.S. Market Conditions, or: What in the World is Going on in the U.S.?
“May you live in interesting times…” supposedly a Chinese curse, the U.S. arms export trade is currently facing unprecedented challenges and difficulties. Faced with threats from the United Nations via the Arms Trade Treaty, threats of new Federal and State legislation limiting the manufacture of firearms and magazines, and the recent unprecedented consumer demand for firearms have created shortages of nearly all firearms and ammunition. Those involved in the export of semiautomatic firearms from the United States know that sourcing firearms has been challenging since the end of 2012.
As a result of the shortage in firearms available for sale within the United States, opinions, attitudes, and beliefs as to the reason for the shortages and the future of the U.S. firearms industry have run rampant. In order to understand the present and predict the future, one must understand the past. While the proposed legislations currently proposed within the United States are new, the challenges are not. The U.S. firearms industry has always faced threats of additional regulation since the first regulations were put into place in the early 1930s.
Serious efforts to restrict firearms came in the late 1980s, via the 1989 import restriction imposed by the Bureau of Alcohol, Tobacco, and Firearms (herein, ATF.) The 1989 import ban prevented the import of foreign made semiautomatic rifles with pistol grips, collapsible stocks, flash hiders, and detachable magazines. As a result, rifles made by Heckler and Koch Germany are restricted from import, but pistols made by HK were (and continue to be) imported into the U.S. Similarly, AK-type rifles were restricted from import into the United States.
The U.S. firearms industry reacted accordingly, and started to manufacture firearms that were previously importable (but now prohibited from import) within the United States. Heckler and Koch have a U.S.-based factory to manufacture civilian legal HK416 rifles. Steyr built a U.S.-based factory to manufacture the venerable AUG – a rifle that cannot be imported, but is still legal to manufacture and sell within the U.S.
In partial response to the industry’s reaction to the 1989 import ban, in 1994 the U.S. Congress prohibited the manufacture of semiautomatic firearms with pistol grips, collapsible stocks, and flash hiders. The manufacture of new detachable magazines capable of accepting more than ten rounds of ammunition was prohibited. Again, the U.S. firearms industry reacted accordingly. AR-15 type rifles were still manufactured, albeit without the offending parts. Most importantly, semiautomatic firearms with pistol grips, collapsible stocks, flash hiders, and full-capacity magazines were still manufactured for export.
The 1994 legislation expired in 2004, and the manufacture of semiautomatic firearms with pistol grips, collapsible stocks, and flash hiders for the U.S. civilian market was again legal. Unable to pass legislation at the national level, restrictions came in other forms. The import of barrels previously possessed by foreign military forces was no longer permitted for import, as the barrels were deemed “non-sporting,” and thus not acceptable for the civilian market. Newly imported rifles manufactured outside of the U.S. were required to be reengineered so that parts from previously imported rifles could not interchange with the new import models. Again, the U.S. firearms industry reacted in a positive manner – barrels are made within the U.S., and an entire class of gunsmiths sprung up to reverse the engineering restrictions placed on newly imported rifles.
The market for civilian legal firearms within the United States defies easy description or understanding. Discussions about the current U.S. market conditions with foreigners are often met with disbelief and amazement. During a recent conversation with a Canadian firearm dealer, a comment was made about the current state of supply and demand for American made firearms. The perception, according to the Canadian, was that demand in the U.S. was “a fiction created by U.S. manufacturers. After all, if U.S. manufacturers were making as many firearms and related parts as claimed, there should be no backlog of firearms and parts.” The reality is that U.S. demand is currently at unprecedented levels, and that U.S. manufacturers are working as hard as they can to meet existing back orders. The shelves of gun stores in the U.S. have been mostly bare for the past three months, and there is no relief in sight. It is not uncommon for hundreds of AR-15 receivers to be sold within a matter of days, if not hours. The current demand in the U.S. is real, and shows no sign of dwindling in the near future.
And yet, maybe there is some basis to the Canadian’s perceptions. Again, we need to look to the past to understand the present. In 2007 and early 2008, following the election of President Obama, firearm sales ran high. It was difficult to keep any firearms in stock for sale, at any price. Then, in the summer of 2008 a funny thing happened – the demand for rifles within the U.S. disappeared almost overnight. Manufacturers were turning out thousands of rifles per day, but there was no consumer demand. Distributors cancelled orders for thousands of rifles, and manufacturers were forced to sit on inventories. Some manufacturers went bankrupt.
The lessons learned from 2008 are shaping the current shape and scope of manufacturing. During a discussion with the CEO of a major rifle manufacturer, the comment was made that “ten million dollars of new equipment and infrastructure could be put into place within 60 days, but what does the future hold? We’re not going to invest in the future when we have no idea whether our product will be banned from production within the next three months.” Existing manufacturing infrastructure will continue to run at full capacity as long as demand levels remain high, but few manufacturers are willing to invest in new equipment to increase production given the current political uncertainty.
Given that there are insufficient supplies coming from U.S. manufacturers, it should not come as a surprise that imports have taken a front seat in an attempt to meet demand within the United States. Again, perceptions rule the discussion. A recent discussion with a foreign manufacturer was met with amazement, as the perception was that a complete ban on firearms within the U.S. was imminent, and that any order placed now would be folly.
Nearly all of the demand for firearms within the United States is based upon proposed or pending legislation, whether at the Federal or State level. At the Federal level, the U.S. Congress has proposed banning several hundred types of semiautomatic firearms, limiting or restricting the private sale of firearms between individuals, and (similar to the 1994 legislation) restricting the manufacture and sale of full capacity rifle and pistol magazines. The good news is that as of press time, the ban on semiautomatic firearms appears dead. The bad news is that restrictions on magazine capacity may have enough support to become U.S. law. If these laws pass at the Federal level, what effect will that have upon foreign buyers? The only clear answer is that the future remains unclear.
The United States is the largest exporter of arms in the world, with Russia coming as a distant second, and China as an unknown. What does the future hold? While it is impossible to predict the future, given past examples, it’s likely that any restriction placed on the U.S. civilian market will not be placed on the U.S. arms export industry. From 1994 through 2004, 30-round magazines for the AR-15, M16, and M4 series of rifles were manufactured for export, despite being prohibited for U.S. civilian possession. It is likely that the export of U.S.-made arms to qualified end users will not be impeded, despite any new U.S. law or regulation.
The future holds many unknowns. If new legislation passes in the U.S., will the U.S. State Department allow the export of semiautomatic rifles to foreign civilians? What effect with the United Nations Arms Trade Treaty or the proposed Arms Standard place upon the world arms trade? Will export reform within the United States make it easier (or more difficult) to export arms from the United States? None of these issues has a clear answer, and yet each has the ability to greatly affect the trade in arms.
The future of the industry is, without a doubt, bright. U.S. manufacturing will catch up to demand at some point, with (or without) the help of new legislation. If new legislation is passed, U.S. manufacturers will respond with ingenuity and creativity to satisfy consumer demand within the bounds of any new law. If the 1994 legislation is any guide, exports will probably continue unabated, once supply levels return to normal. Like in 2008, consumer demand may suddenly fall unexpectedly. Until then, hold on – this is going to be one hell of a ride…
Mr. Wong is a Washington licensed attorney. He regularly provides legal counsel to the firearm and defense industry via his law firm, The Firearms Law Group. Mr. Wong also maintains Hurricane Butterfly, an import/export company that assists U.S. firearm manufacturers and foreign buyers that do not wish to wade into the regulatory morass of U.S. import/export regulation. He may be contacted via email at jmwong@FirearmsLawGroup.com.
The guidance provided within this article was correct and current at the time it was written. Policies and regulations change frequently. The preceding article is not intended as legal advice, and should not be taken as legal advice. If the reader has specific legal questions, seek competent legal counsel.