Pencil Importer Says Commerce Misapplied 'Substantial Transformation' Test in Scope Ruling

The Commerce Department interpreted the scope of the antidumping duty order on cased pencils from China in a way that is "contrary to the plain language of its terms," importer School Specialty told the Court of International Trade in a June 28 complaint. The importer said the agency also misapplied the "substantial transformation test" in its scope ruling (School Specialty v. U.S., CIT # 24-00098).

School Specialty filed its scope ruling request in June 2023 regarding "certain #2 pencils, drawing pencils, and colored pencils" made in the Philippines with Chinese-origin raw material inputs -- namely, "wooden slats, graphite/color cores, ferrules, and erasers." The scope request said the inputs aren't writing instruments and that Commerce has itself said in a past scope ruling that a "writing instrument" with a graphite core encased in wood matches the goods subject to the order.

Commerce rejected School Specialty's claims, finding that as writing instruments with graphite cores encased in wood, the imported pencils meet the "physical description of the Order." Analyzing whether a substantial transformation occurred in the Philippines, Commerce reviewed the six factors enumerated in its regulations and said no such transformation occurred.

School Specialty said Commerce disregarded some of these factors, instead focusing on the inputs' "predetermined use." The complaint said none of the six regulatory factors refers "to whether a product’s components have a 'predetermined use,'" nor do Commerce's regulations "provide for discounting or omitting certain factors if Commerce first makes such a determination."

The agency failed to "properly analyze multiple factors" found in its regulations, including the "intended use" factor, the "extent of the 'physical characteristics' imparted by the manufacturing in the Philippines" and the "nature and sophistication of processing" in the Philippines, the brief said.