The government says its new steel trade measure applies to products that can be made in Britain.
The Public Accounts Committee found that the customs classifications used to enforce it can also catch specifications that British producers do not make. UK manufacturers can therefore face a 50 per cent tariff on steel they cannot source domestically.
Since 1 July, the quota volumes that can enter without a tariff have been cut by 51 per cent compared with the previous steel safeguard. Imports above quota face a tariff of 50 per cent. The measure covers 20 product categories.
The difficulty lies inside those categories.
HMRC administers the system through commodity codes. A single code can include several dimensions or specifications of the same broad steel product even where only some are manufactured in the UK.
Officials gave steel pipe as an example when questioned by MPs. Pipes of different diameters and lengths can share the same customs classification even though British mills do not make every version. Companies needing one of the unavailable specifications must either secure space within the quota that carries no tariff or pay the tariff.
When the committee asked whether the system could put smaller companies out of business, the department replied that it was "afraid that may well be the case".
The committee also heard evidence that the measure could encourage some companies to import finished goods rather than bring steel into Britain for further manufacturing. Finished products outside the steel measure would not face the same tariff.
That outcome would work against one of the objectives of the government's steel strategy, which is to increase domestic production and support manufacturing supply chains.
The strategy itself records the tension between steel producers and their customers. Producers told government that strong trade protection was needed to remain viable. Downstream users favoured less intervention and stressed the need to secure reliable supplies. The government said the new measure would take downstream supply into account.
The case for protecting domestic steel production is substantial.
UK crude steel production has fallen by more than 50 per cent over the past decade. The OECD expects the gap between global steelmaking capacity and demand to reach 721 million tonnes by 2027, creating continued pressure from excess international supply.
Energy costs are another problem. In the consultation behind the steel strategy, 48 per cent of respondents said electricity prices damaged competitiveness and 46 per cent said they deterred investment.
The dispute is therefore not simply about whether Britain should protect steelmaking. It is about whether the tariff system distinguishes accurately enough between products Britain can supply and products downstream manufacturers still have to import.
The government has already altered the scope once.
From 1 October, two non-alloy steel wire commodity codes, 72173049 and 72173090, were removed from the measure. Their tariff rate fell from 50 per cent to zero. The quota volumes for the wider Category 28 remained unchanged.
That amendment came after the Public Accounts Committee report was published on 18 September. It shows that individual commodity codes can be removed without waiting for a wholesale redesign of the measure.
The wider classification problem identified by MPs remains.
The department told the committee that it did not intend to carry out a substantive review of the tariff regime for 12 months. The PAC said that would leave manufacturers bearing the costs of what it described as a dysfunctional system despite credible evidence of unintended effects.
The committee has called for the department to establish a formal route for companies to raise problems with the tariff regime immediately.
It also wants government, within six months, to work with industry on a more detailed product classification system and explain how unintended effects on UK manufacturers will be monitored and mitigated.
The government's published description of the measure still says it applies to steel products that can be made in the UK. The committee's evidence shows why that description needs qualification: the broad commodity codes used to enforce the tariff can include individual specifications for which there is no British supplier.