GAO Criticizes Inefficiency in Section 232 Exclusion Review, Lack of Policy Review
The Commerce Department had little success when it tried to reduce the number of Section 232 exclusion applications that were rejected for technical problems by launching an applications portal in 2019, a Government Accountability Office report, released Sept. 15, said. The GAO said that the rejection rate went from 18% to 16% with the new portal. Even though the portal has mandatory fields, in an effort to eliminate incomplete submissions, the rejections for reasons other than an incorrect Harmonized Tariff Schedule code went from 27% in Regulations.gov to 43% in the portal.
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The auditors did not take on questions of political influence that had earlier been addressed by the Inspector General, and only briefly touched on the fact that Commerce does not verify either requestors' claims that they need the quantity they're asking for nor does it verify that objectors are able to produce the product at similar quality within eight weeks. Commerce denied 82% of the steel requests where producers objected and only 14% with no objections. It denied almost 47% of the aluminum requests with objections and 7% with no objections.
They did, however, address the lack of follow-through at Commerce about whether the tariffs still are necessary. The report said that the interim final rule in September 2018 said Commerce economists would regularly review the impact of the tariffs and quotas, including on downstream sectors. It also told House Ways and Means Committee members it would do such reviews twice a year. Without these reviews, the authors said, Commerce may not be able to know whether the tariffs are still necessary -- or if they should be hiked. “Commerce was unable to identify the agency officials responsible for regularly reviewing the impacts of the Section 232 tariffs. Moreover, we were unable to determine whether Commerce conducted any regular reviews of the tariffs’ impacts, and agency officials were unable to produce documentation containing the results of any review,” the report said.
Rep. Jackie Walorski, R-Ind., one of the House members who requested that GAO do an investigation, said this aspect of the report is the most concerning, and said Commerce had repeatedly promised her, and Ways and Means Committee colleagues, that it would review the impact on not just steel producers, but on manufacturers and the economy as a whole.
Much of the report focused on the lack of timeliness of decisions. “Commerce did not decide about three quarters of requests within its established timeliness guidelines, as shown in the figure, taking more than a year to decide 841 requests,” the report said. The scope of the review ended in November 2019, but the report also said that as of Aug. 27, there are still 30,000 requests pending a decision. The Commerce Department said that since the exclusion portal went into effect, average processing time has improved from 121 days to 59 days.
Walorski said, “The Commerce Department failed to meet its own deadlines 79 percent of the time -- including for 96 percent of requests with objections. It reached decisions without verifying claims made by requesters and objectors alike. It denied thousands of requests without further explanation, even though domestic producers cited production and delivery timelines that did not meet the department’s own standards.”
Sen. Doug Jones, D-Ala., one of the Senate requestors, said that the “tariff exclusion process stood up by the Commerce Department was quickly overwhelmed and backlogged, leading American businesses to pay tariffs they shouldn’t owe and to spend months trying to resolve their claim with the Department.”
If there is an objection to a request, the exclusion goes through a multilayered review. International Trade Administration evaluators write a draft recommendation memo. Agency officials look for holes in the analysis, and then a more senior team looks for accuracy, consistency and completeness in the analysis. The deputy assistant secretary for policy and negotiations for enforcement and compliance reviews approves all decisions.
Overall, just over half of steel imports were subject to tariffs between March 2018 and January 2020, GAO said, but the 49% that were not subject to tariffs mostly came from countries not subject to the tariffs at the time (such as Canada and Mexico) or countries that accepted quotas (such as South Korea and Brazil). Only 20% of the steel products that came in tariff-free were spared the tariffs because of exclusions -- but that still covered $5 billion worth of imports. The tariffs paid during that time for steel imports were about $6.4 billion. Japan was the only one of the top five exporters in steel during the period that wasn't spared the tariffs through quotas or through a country exemption.
During the same period, 62% of aluminum imports were subject to tariffs. The GAO estimated that importers paid $1.9 billion in Section 232 tariffs on aluminum during that time.
Sen. Pat Toomey, R-Pa., the lead requestor in the Senate, said the Section 232 tariffs should be lifted entirely, but that the Commerce Department should make a plan to make exclusion decisions faster and to help prevent applicant errors in submissions. “Furthermore, it’s long past time for the Commerce Department to comply with the law that required them to release the 232 auto report by January 19, 2020,” he wrote.