While the news hasn’t been paying much attention to Russia and the Ukraine lately, it isn’t over yet. On August 5th and 6th, I attended the Firearms Import/Export Conference hosted by the National Shooting Sports Foundation (NSSF), Firearms Import/Export Roundtable (FAIR) Trade Group and Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE). The buzz at the time was the recent sanctions imposed on Kalashnikov Concern by US Treasury Department. Obviously, if you are in the industry, this topic fascinates you.
In my other life (day job) as a national security strategist (or at least that’s what my degree says!), the subject of sanctions also fascinating. On the strategic level, there are four generally accepted instruments of national power: Diplomatic, Information, Military and Economic (DIME). Some more modern versions add Financial, Intelligence and Law Enforcement, but most could argue that those are subcategories of E, I and M. At the end of the day, these are levers one nation-state pulls to coerce, co-opt or otherwise influence a behavior on another nation. In the case of targeted sanctions, the United States is essentially trying to communicate to Russia that this is going to become painful and expensive, but it is still preferable to using force. The notion is that since much of the world transacts in the US Dollar, and the US controls the US Dollar, financial institutions who deal in dollars much deal with the US and are subject to dealing with and abiding by US regulations over handling US currency instruments. The dollar as a world reserve currency has worked very much in our favor in the post-World War II era. Even with sanctions in place, it’s not that countries won’t deal in dollars, they just find it more and more challenging–fewer banks are willing to take deposits and disbursements for sanction targets and those that do start adding premiums to transactions (how would you like to pay 10-15% to deposit and withdraw your money with no guarantee that it may not be discovered by the US in the future and frozen?). When they do get caught, accounts are frozen and and the US imposes fines on financial institutions and businesses that violated the sanctions. Therein lies the nature of the risk in dealing with sanction targets. Embargoes and large-scale sanctions against a nation are intended to cause financial damage to the extent that it may bankrupt a country, but what often happens are the “little guys” and the general population gets harmed more than the ruling elites and “fat cats” of a country. The theory of targeted sanctions is that by going after the wealthy elites, they will exert political pressure on the government to behave in a way which will align with US national interests.
At the conference, I had the chance to talk to both government representatives as well as importers to get a feel on how this will affect the industry. On a much more “tactical” level, sanctions are felt by people and how they make their living. The current sanctions imposed targeting Kalashnikov Concern hits home with the firearms industry. Many have seen it with the recent explosion in prices over AK prices (in particular, Russian-made AKs) and sell-outs of Russian made ammunition. What many don’t understand is how far the web of sanctions extends. It’s not just Kalashnikov in particular, it is also businesses in which it has some controlling interest over. If Kalashnikov or major leadership within Kalashnikov hold majority votes in another company, that company is also sanctioned. Even Kalashnikov’s suppliers are affected: they can not provide supplies to Kalashnikov that would allow financial gain or benefit to Kalashnikov. One area that is often overlooked is the logistics side of the equation. Much of the shipped products coming from Russia, Ukraine and even Black Sea nations like Bulgaria, are carried by Russian-controlled carriers. While Tula may be directly affected by the Kalashnikov sanctions, Wolf (who sources steel-cased ammo from both Russia and Ukraine) may not feed the direct effects, but may feel it in the form of shipping. Suddenly, the Black Sea is not a viable route to ship (the cheapest way to get ammo to the US), so now it much go by truck or rail to Baltic ports like Germany. Once you add multiple borders, you add multiple regulatory controls (despite the EU making an “economic” union, individual nations still maintain sovereignty and are still allowed to interpret rules and regulate their borders). More regulation means more cost to ship and in turn, we expect to see longer time between shipments and more cost felt by buyers.
The sanctions also put a lot of current orders in limbo. If it’s a consignment, where one receives shipment and agrees to sell and reimburse a manufacturer (a lot of imported ammo is consigned), that ammo doesn’t have a clear title and legally can’t be sold, which leaves the imported with lots of inventory which can’t be returned to Russia and must be warehoused by the importer until sanctions are over. If an importer contracted for ammunition before the sanctions and was four shipments into a ten shipment contract, the remainder of the contract much be suspended. The question of ownership and title is important when dealing with sanctions–who owns the product and where is it located. Naturally, one can see why importers are very concerned. Of course, no businessman worth his salt will give up the goods on their future interests, so the rest of us can only speculate if we will see steel-cased Wolf (no-Gold line brands such as WPA, Military Classic, Wolf Polyformance) ammunition and other Russian ammunition dry up in the near future.
On a separate note, the UN Arms Trade Treaty was also being discussed at the conference. Originally, NSSF joined into the treaty discussions as an industry observer. Their concerns mounted when the message became very one-sided and taken over by the gun control “experts”. Despite how one feels about participating in a treaty, what one should understand is that unless you come to the table, you don’t have an input into it or nor an insight into the process and the direction it is heading. Unfortunately, some of the industry fears may be founded. End user certificates are a key element of the ATT, as is an amendment process that is liberal even by UN standards. The US Government’s stance is that the ATT will not affect the US and it believes that it is already acting in accordance with the treaty and has the controls in place already called for in the treaty. It is a very myopic view (similar to a lot of things the government does). What the US Government doesn’t control is how it will affect other nations and how it will affect their interpretation of the regulations called for by the treaty. Would a Caribbean nation who doesn’t have an arms and munitions industry, interpret a shipment bound for the US and passing through a Caribbean port as not being in compliance with the treaty and seize the shipment? How would the importer and exporter end up in arbitration? So regulation-wise, US businesses may not have to change how they are doing business, the products they import may suddenly carry lots of extra risk and associated costs. Imagine the cost of a Beretta if has to direct ship to the US (most likely by air freight)!
So lets hear it from you out there! I know it’s a boring topic, but certainly one worth having an “adult conversation” about around the dinner table, across the fence, on the front porch stooping around your neighbor’s driveway.
