GAO Tells CBP to Catch Entries Claiming Filled Section 232 Exclusions Before Reliquidation Window Closes

Approximately $32 million in Section 232 duties on steel or aluminum should have been paid between March 2018 and Nov. 10, 2021, but weren't because of data errors in the transmissions between the Bureau of Industry and Security and CBP, or because CBP had not caught up to the fact that the exclusion had been filled. According to an analysis by the Government Accountability Office, more than 90% of the unpaid duties were due to CBP not realizing that exclusion volumes for a particular product and firm had been surpassed at the time of the entry, and the agency did not realize that fact until after the 90-day reliquidation period.

The GAO analyzed two issues for requestors, a group that included two House Republicans, one Democrat on the House Ways and Means Committee, and Senate Finance Committee Chairman Ron Wyden, D-Ore., and committee member Sen. Tom Carper, D-Del. One was the issue of whether duties that should have been paid were paid. The other issue was whether the exclusions that were granted were appropriate, since the volumes requested by importers were frequently far above historic import volumes.

The exclusions do not appear to have driven more imports than usual -- even though the exclusion quantities were high, that didn't mean those quantities were used. In more than half the cases, exclusions that were granted were never used at all, according to a review of exclusions granted from March 2018 through September 2021. The majority of those exclusions expired by the end of September 2021, however.

Even when importers did avail themselves of the exclusions, they rarely imported the volumes they said they needed -- when you combine both the never-used exclusions and the underutilized exclusions, only 9% of requested steel volumes covered by exclusions and 11% of requested aluminum volumes covered by exclusions granted from March 2018 through September 2021 ended up being imported by November 2021. (Importers do have one year to import under the exclusion, so some of the later exclusions could have had more utilization beyond the scope of the audit).

However, even at such low utilization, importers saved about $2.2 billion in steel duties and $440 million in aluminum duties through exclusions from March 2018 to September 2021.

Why is utilization so low? GAO analysts said industry sources told them companies may have asked for more than they needed:

• Because they didn't know if they would get exclusions, or when they would be granted.
• Asking for large amounts could make it difficult for domestic producers to object, since they wouldn't be able to produce such volumes.
• Because they were hedging against supply chain disruptions domestically or in countries not covered by 232 tariffs.

As a result of these too-high requests, in December 2020, the BIS started requiring that exclusion requesters certify that they would consume or sell the full quantity of the product already covered by exclusions and in pending requests.

However, BIS told GAO they are unsure how much a difference it made, though preliminary analysis showed "a marginal positive effect on exclusion utilization." One of the report's recommendations was that the Commerce Department require that "the Under Secretary for Industry and Security fully assesses the effectiveness of the quantity certification requirement BIS put in place." Commerce agreed on that recommendation.

On the question of why duties may not have been paid, GAO found two problems -- data transmission on issues like country, firm name, date of exclusion and the like between BIS and CBP, and the entry of those pieces of data into ACE. However, mistakes of those kinds declined sharply after BIS went to a Section 232 exclusions portal, instead of taking exclusions requests through regulations.gov. Once the portal was in use, only 3% of exclusions had inconsistent data between what was transmitted from BIS and what is recorded in ACE.

Moreover, very little of the missed duties are due to those kinds of errors. More than 90% is because an exclusion's volume was met, but CBP allowed entries in after that point without charging Section 232 tariffs.

GAO pointed out that this problem could have been avoided if ACE had been programmed to automatically start levying tariffs once exclusions were filled.

"CBP officials told us that establishing an automated quantity control would have been highly time and labor intensive because ACE would need to be programmed to track each exclusion’s quantity individually and then automatically deactivate the exclusion when the approved quantity has been reached," the report said.

The report recommended: "The Commissioner of CBP should ensure that controls are implemented either to prevent importers from exceeding the approved quantities of their Section 232 exclusions or to promptly assess duties owed because of overages before CBP's 90-day re-liquidation period expires."

CBP agreed with this recommendation. It said that it will write a request for development for ACE to automate exclusion termination when quantities have been filled. It also said it will work to manually deactivate exclusions within the 90-day reliquidation window.

CBP said it did assess $4.3 million in duties for entries that should have paid Section 232 duties. Those bills were sent in fiscal years 2020 and 2021. However, it agreed with the recommendation to take "additional steps ... as appropriate, to recover the duties owed by importers as a result of invalid use of Section 232 exclusions, including for liquidated entries beyond CBP's 90-day re-liquidation period."

CBP also told GAO that the quarterly quotas for Korean and Brazilian steel products are not automated in ACE, and so those are difficult to enforce.