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Washington, DC -(AmmoLand.com)- In an Explosives Industry Newsletter issued in June 2016, the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) reclassified wetted nitrocellulose containing greater than 12.6 percent nitrogen as a high explosive under the federal explosives laws.

As explained below, this is a dramatic and sudden change in agency policy with a significant impact on the ammunition industry. The new policy was announced in a newsletter without any opportunity for industry input.

[b]I. Background

The federal explosives laws, 18 U.S.C. Chapter 40, regulate commerce in “explosive materials.” The term “explosive materials” is defined as explosives, blasting agents, and detonators. The term “explosives” is defined as any chemical compound mixture or device the primary or common purpose of which is to function by explosion. The definition requires ATF to publish an annual list of explosives that fit within the statutory definition. The 2015 List of Explosives is available at https://www.gpo.gov/fdsys/pkg/FR-2015-10-23/pdf/2015-26994.pdf.

Exemptions from the requirements of the federal explosives laws are provided, in pertinent part, for: (1) the transportation, shipment, receipt, or importation of explosive materials for delivery to any federal or State agency; (2) for small arms ammunition and components thereof; and (3) for the manufacture under the regulation of the U.S. military of explosive materials for their official use.

The term “ammunition” is defined in 27 C.F.R. § 555.11 as follows:

“Small arms ammunition or cartridge cases, primers, bullets, or smokeless propellants designed for use in small arms, including percussion caps, and 3/32 inch and other external burning pyrotechnic hobby fuses. The term does not include black powder.”

ATF’s longstanding position is that the small arms ammunition exemption applies only to .50 caliber or smaller rifle or handgun ammunition as well as certain shotgun ammunition. This position is clear in a June 2013 Explosive Industry Newsletter addressing exploding ammunition.

ATF also exempts other components of small arms ammunition from the requirements of the law and regulations, but only if such components are listed in the definition of “ammunition” in 27 C.F.R. § 555.11. This means that smokeless powder and primers are exempt from record keeping and storage requirements. However, other explosive materials used to manufacture ammunition will not be exempt until incorporated into one of the components of ammunition listed in the regulation, including smokeless powder or a complete round of small arms ammunition. Thus, wetted nitrocellulose containing greater than 12.6 percent nitrogen may be lawfully shipped, transported, or received only by persons holding federal explosives licenses or permits. Nitrocellulose must be recorded in records of acquisition in accordance with 27 C.F.R. § 555.123(b). The wetted nitrocellulose must also be recorded in the daily summary of magazine transactions required by 27 C.F.R. 555.127 and stored in storage magazines meeting the construction, tables of distance, and other requirements of storage regulations in 27 C.F.R. Part 555. At the point the nitrocellulose is incorporated into smokeless powder or a complete round of ammunition, it is exempt from the requirements of the record keeping, storage, and other requirements of federal law and regulations.

II. ATF Newsletter Article

The June 2016 newsletter article states that ATF was recently asked about the status of nitrocellulose under the federal explosives laws and regulations. The article notes that “Nitrocellulose explosive” is on ATF’s List of Explosive Materials and states ATF has determined that “nitrocellulose containing greater than 12.6 percent nitrogen is a high explosive under 27 C.F.R. Part 555.” The article indicates ATF is aware that the U.S. Department of Transportation may assign a nonexplosive classification to nitrocellulose when it has been wetted with water or alcohol, based, in part, on the diminished likelihood of explosion in a transportation accident. However, because nitrocellulose retains its explosive characteristics when the water or alcohol is removed, the wetted nitrocellulose remains a nitrocellulose explosive subject to all controls of the federal explosives laws. Because of the diminished likelihood of wetted nitrocellulose exploding, “ATF will consider variance requests to store the wetted material under an alternative arrangement.”

III. Impact of ATF Reclassification

Manufacturers and importers of smokeless propellant have relied on ATF private letter rulings issued prior to 2016 stating that nitrocellulose wetted with water not less than 25 percent by mass is not subject to regulation under the federal explosives laws. Accordingly, the manufacturers have set up their logistics, storage and operations consistent with nitrocellulose not being regulated as an explosive. Manufacturers and importers may not have adequate storage facilities or record keeping systems to comply with the law. Licensed manufacturers also rely on private, unlicensed vendors to store wetted nitrocellulose in facilities that do not comply with storage requirements. A number of manufacturers also report an adverse impact on their contracts to supply smokeless propellant and finished rounds of ammunition to the Department of Defense.

Publication of the change in classification in an industry newsletter without advance notice has left manufacturers scrambling to determine what standards ATF will allow for alternate storage and record keeping and to obtain permits for unlicensed storage vendors. In the meantime, manufacturers and importers are violating federal law, as ATF allowed no grace period for coming into compliance. We note that ATF has authorized such periods in the past when changing agency positions. For example, see ATF’s November 12, 2010 Open Letter regarding explosive pest control devices.

IV. Conclusion

ATF’s sudden and unexpected change in policy on wetted nitrocellulose will likely have a significant impact on industry’s ability to deliver products to the military and commercial markets. Industry members have relied on the exemption for wetted nitrocellulose for many years and are aware of no accidental detonations or diversion of this product into illicit channels. Consequently, it is unclear why ATF believed it necessary to change its policy and, more importantly, why ATF announced the change in a newsletter article with no advance notice to industry.

We are working with ATF to address the issues raised in this alert, including a possible agency announcement of delayed enforcement. We will notify our readers of any developments in the future.