Cased Pencils Processed in Philippines Not 'Substantially Transformed,' Scope Ruling Finds

Drawing pencils, colored pencils and #2 pencils exported from the Philippines by School Specialty are subject to an antidumping duty order on cased pencils from China, the Commerce Department said in a May 7 scope ruling.

Though they fit the physical description of goods covered by the order, the goods’ manufacturing process -- which imports raw materials from China for processing in the Philippines -- substantially transforms them enough that their country of origin should properly be considered to be the Philippines, not China, School Specialty had argued.

Commerce conducted a substantial transformation analysis in the scope ruling. In it, the department did find that pencil inputs would not, on their own, be covered by the order. And it said that the production process that turns those inputs into pencils transforms them “to a significant degree.”

However, it said that three of the four Chinese-origin inputs -- ferrules, erasers and graphite or color cores -- “are used as components of a cased [pencil] and are not further processed in the Philippines.” It also said that those inputs “were pre-determined for a specific end use at the time of importation” that was the same as the cased pencils’ end use.

Further, it said that six out of the nine cased pencil manufacturing steps that occurred in the Philippines were simple finishing and packaging, so the overall processing in that country was not significant. And School Specialty didn’t provide any quantitative information about how much it spent on production and investment in the Philippines, it said.

“Although Commerce does not have an established threshold for determining when a certain percentage of the cost of production in a third country represents a substantial transformation conferring country of origin, we typically need the underlying cost data to make such an evaluation,” it said.

As a result, it found that the cased pencils had not undergone significant transformation and fell within the scope of the antidumping duty order.