Slip Op. 25-97
UNITED STATES COURT OF INTERNATIONAL TRADE
Court No. 24-00098
SCHOOL SPECIALTY, LLC, Plaintiff, v. UNITED STATES, Defendant, and DIXON TICONDEROGA COMPANY, Defendant-Intervenor.
Before: M. Miller Baker, Judge
OPINION
[The court sustains Commerce’s country-of-origin de- termination in part and remands in part.]
Dated: July 31, 2025
Nithya Nagarajan and Jamie L. Shookman, Husch Blackwell LLP, Washington, DC, on the briefs for Plaintiff.
Brian M. Boynton, Principal Deputy Assistant Attor- ney General; Patricia M. McCarthy, Director; Franklin E. White, Jr., Attorney; and Augustus Golden, Attor- ney, Commercial Litigation Branch, Civil Division, Ct. No. 24-00098 Page 2
U.S. Department of Justice, Washington, DC, on the brief for Defendant. Of counsel on the brief was Chris- topher Alan Kimura, Attorney, Office of Chief Counsel for Trade Enforcement and Compliance, U.S. Depart- ment of Commerce, Washington, DC.
Felicia Leborgne Nowels, Michael J. Larson, and Li X. Massie, Akerman LLP, Tallahassee, FL, on the brief for Defendant-Intervenor.
Baker, Judge: This case is about the making of pen- cils, a subject dear to the heart of one of the great econ- omists of the 20th century, Milton Friedman. 1 An im- porter challenges the Department of Commerce’s de- termination that pencils exported from the Philippines
1 Friedman and his wife and co-author famously used the
example of a humble pencil to illustrate “how voluntary ex- change enables millions of people to cooperate with one an- other.” Milton & Rose Friedman, Free to Choose 11 (1980). With the purchase of a single pencil, “we are exchanging a little bit of our services for the infinitesimal amount of ser- vices that each of the thousands [of people] contributed to- ward” its production. Id. at 12–13. They describe the log- ging in the Pacific Northwest; “millwork involved in con- verting the logs to slats”; the mining of graphite in Ceylon; the manufacture “of metal—the ferrule—near the top of the pencil”; the making of the eraser with seed oil from In- donesia, “known in the trade as the plug”; and the assem- bly of these components in Wilkes-Barre, Pennsylvania. Id. How did all this happen in the absence of “a central office [giving] orders to these thousands of people”? Id. at 13. “Adam Smith gave us the answer two hundred [and fifty] years ago.” Id. Ct. No. 24-00098 Page 3
are within the scope of an order imposing antidumping duties on such merchandise from China. As explained below, the court sustains the determination in part and remands in part for further proceedings.
I
An antidumping or countervailing duty order’s “de- scription of the subject merchandise” defines the prod- ucts it covers. 19 U.S.C. § 1673e(a)(2). In issuing such decrees, Commerce’s practice is to “describe[] the prod- uct ‘within the scope of the order’ by reference to its ‘technical characteristics’ and ‘country of origin’ . . . .” BYD (H.K.) Co. v. United States, Slip Op. 25-60, at 3, 2025 WL 1420318, at *1 (CIT 2025) (cleaned up and quoting Canadian Solar, Inc. v. United States, 918 F.3d 909, 913 (Fed. Cir. 2019)), appeal pending, No. 25-1937 (Fed. Cir.).
The nature of the global marketplace and the “ever- changing varieties” of commodities available naturally prompt questions “as to whether a particular product is subject to” such orders. Saha Thai Steel Pipe Pub. Co. v. United States, 101 F.4th 1310, 1315 (Fed. Cir. 2024) (citing 19 C.F.R. § 351.225(a)). By regulation— the statute provides no such mechanism—a producer, importer, or other interested party uncertain about whether a product falls within an order’s ambit may ask the Department for a ruling to clarify the decree’s Ct. No. 24-00098 Page 4
terms. See 19 C.F.R. § 351.225(c)(1). Such a proceeding is called a “scope inquiry.” Id. § 351.225(a). 2
In a scope inquiry, Commerce may need to “deter- mine the country of origin” of the merchandise at is- sue. Id. § 351.225(j). To do so, it “may” conduct a “sub- stantial transformation analysis” to identify the fin- ished product’s country of origin. Id. § 351.225(j)(1). 3
In that exercise, the Department “may . . . con- sider[] relevant factors that arise on a case-by-case ba- sis, including” (i) whether “the processed downstream product is a different class or kind of merchandise than the upstream product,” (ii) the “physical charac- teristics . . . of the product,” (iii) the “intended end-use of the downstream product,” (iv) the “cost of produc- tion/value added of further processing in the third country,” (v) the “nature and sophistication of process- ing in” that nation, and (vi) the “level of investment”
2 “This device is roughly analogous to the procedure by which a party uncertain of its rights or obligations may seek a declaratory judgment in federal court.” Fedmet Res. Corp. v. United States, Slip Op. 24-136, at 3 n.1, 2024 WL 5088294, at *1 n.1 (CIT 2024) (citing 28 U.S.C. § 2201). 3 The Department has discretion not to apply its substan-
tial transformation test when it determines that this anal- ysis is “not appropriate.” See 86 Fed. Reg. 52,300, 52,321. In those cases, it can apply a “different, reasonable test.” Id.; cf. Canadian Solar, 918 F.3d at 919 (“Commerce pro- vided ‘good reasons for’ departing from the substantial transformation test . . . .”) (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)). Ct. No. 24-00098 Page 5
there. 19 C.F.R. § 351.225(j)(1)(i)–(vi). It “also may consider” where the product’s “essential component” is made or where its “essential characteristics” are im- parted. Id. § 351.225(j)(2). These “listed factors are not exhaustive, because Commerce must retain the flexi- bility to adjust its . . . analysis when the facts on the record warrant” doing so. 86 Fed. Reg. at 52,321.4
In making a country-of-origin determination, the Department “is not bound by the determinations of any other agency,” including Customs and Border Pro- tection rulings. Id. § 351.225(j). Even so, such deci- sions are another “type of evidence for Commerce to consider,” SolarWorld Americas, Inc. v. United States, 910 F.3d 1216, 1225 (Fed. Cir. 2018)—or, in the judi- cial vernacular, persuasive authority.
II
In 1994, the Department issued an antidumping duty order covering pencils from China. 59 Fed. Reg. 66,909. It applies to “certain cased pencils of any shape or dimension which are writing and/or drawing
4 As a result, Commerce has sometimes applied “different
iterations of [its] substantial transformation analysis.” Id. (internal quotation marks omitted). Ct. No. 24-00098 Page 6
instruments that feature cores of graphite or other ma- terials encased in wood and/or man-made materials . . . .” Id. 5
School Specialty, LLC, is a pencil importer. Appx000012. In 2023, it asked Commerce to declare that the order—which is still in effect—does not cover its pencils exported by a Philippine producer. Appx000007–000239. 6
As requested, the Department opened a scope in- quiry. Appx000420–000421. Dixon Ticonderoga Com- pany, the petitioner in the decades-ago investigation that says it still makes pencils in this country, 7 sub- mitted opposing comments. Appx000302–000323.
5 In common parlance, “pencil” refers to cased pencils. “Cased” merely means that an enclosure of some kind (usu- ally wood) covers the graphite core that makes a mark. See Pencil, Oxford English Dictionary (describing the “prevail- ing sense” of “pencil” as “[a] tapered or pointed instrument for writing or drawing, consisting of a slender stick of graphite . . . enclosed in a long thin cylindrical piece of wood, or fixed in a case of some other material (as metal, plastic, etc.)”). Examples of “uncased” writing instruments are crayons and chalk. 6 According to the importer, it is “unaffiliated” with the
Philippine manufacturer. Appx000290. 7 Dixon’s self-description is unchallenged here and thus the
court assumes it to be true. This court previously sustained Commerce’s contested finding that at least for statutory (footnote continues on next page) Ct. No. 24-00098 Page 7
Commerce determined that School Specialty’s pen- cils fell within the scope of the order because they were not substantially transformed in the Philippines. Appx000433–000434. 8 It reached that conclusion by applying the criteria listed in 19 C.F.R. § 351.225(j).
The Department found that the first of the (j)(1) fac- tors—whether “the processed downstream product is a different class or kind of merchandise than the up- stream product”—suggested substantial transfor- mation. Appx000429–000430. That was because the “inputs are a different class or kind of merchandise from the finished cased pencils subject to the Order.” Appx000430.
The second (j)(1) factor—“the physical characteris- tics . . . of the product”—weighed against substantial transformation, as did the (j)(2) factor, “where the es- sential characteristics are imparted.” Appx000430– 000431. Commerce explained that as to these criteria,
standing purposes, the company’s present-day manufac- turing in this country is more than a Potemkin operation. See Shandong Rongxin Imp. & Exp. Co. v. United States, 203 F. Supp. 3d 1327, 1337–45 (CIT 2017). The Federal Circuit, in turn, affirmed that decision via a non-preceden- tial one-sentence order. See 779 F. App’x 744 (Fed. Cir. 2019); see also Fed. Cir. R. 36(a). 8 Before considering country of origin, Commerce deter- mined that School Specialty’s “pencils exported from the Philippines . . . [met] the physical description set forth in the scope of the Order.” Appx000428. That finding is undis- puted here. Ct. No. 24-00098 Page 8
it “considers whether processing in the exporting coun- try changes the important qualities or use of the com- ponent.” Appx000430. Here, the relevant inputs “re- tain[ed] their original general physical and essential characteristics when assembled into a complete cased pencil.” Id. In so finding, it expressly declined to apply a different substantial-transformation test used by Customs and urged by School Specialty. Id. For that reason, the Department found a Customs ruling prof- fered by Dixon not probative. Appx000428. 9
The third and fifth (j)(1) factors—“the intended end-use of the downstream product” and the “nature and sophistication” of the third-country processing— also pointed against substantial transformation. Appx000431–000432, Appx000432–000433. As to the former, Commerce explained that “inputs were pre-de- termined for a specific end use at the time of importa- tion.” Appx000431. And for the latter, the Department said it examines “the nature and sophistication of third country processing,” both absolutely and rela- tively, “in the context of all . . . steps required to pro- duce the merchandise, including those in the order country.” Appx000432. Here, “six of the nine produc- tion steps that occur[red] in the Philippines . . . amount[ed] to simple assembly of the cased pencils.”
9 In doing so, it thereby also implicitly rejected a Customs
ruling tendered by School Specialty finding that the Phil- ippines is the country of origin of its pencils. See Appx000427 (summarizing the importer’s citation of “addi- tional authorities”). Ct. No. 24-00098 Page 9
Id. Although the remaining three—the “grooving, sandwiching, and shaping,” id.—related to some addi- tional processing of the wooden slats, absent prefabri- cation in China these materials would be “otherwise unusable.” Id.
Finally, Commerce made no finding about the fourth and sixth (j)(1) factors—the “cost of produc- tion/value added of further processing” and the “level of investment” in the third country. Appx000433. It ex- plained that School Specialty did not provide it with sufficient “quantitative information” to allow it to do so. Id. Although the importer did furnish photographs and narrative descriptions, it failed to supply infor- mation on “cost[s] . . . for each production step that takes place in the Philippines,” “equipment pur- chases,” “registered capital, short term loans, and . . . the number of employees” and their salaries. Id.
The Department’s two-sentence conclusion stated that, “[b]ased on the totality of the factors,” the rele- vant Chinese inputs were “not substantially trans- formed when used to produce cased pencils in the Phil- ippines.” Id. Consequently, it determined that School Specialty’s pencils had “a country of origin of China.” Appx000433.
III
Invoking jurisdiction conferred by 28 U.S.C. § 1581(c), School Specialty brings this suit under 19 U.S.C. § 1516a(a)(2)(B)(vi). ECF 8, ¶ 2. Dixon Ct. No. 24-00098 Page 10
intervened to defend the agency decision. The parties have fully briefed the former company’s motion for judgment on the agency record, which is ripe for deci- sion.
In § 1516a(a)(2) actions, “[t]he court shall hold un- lawful any determination, finding, or conclusion found . . . to be unsupported by substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i). The question is not whether the court would have reached the same deci- sion on the same record. Rather, it is whether the ad- ministrative record as a whole permits Commerce’s conclusion.
Substantial evidence has been defined as more than a mere scintilla, as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. To determine if substan- tial evidence exists, we review the record as a whole, including evidence that supports as well as evidence that fairly detracts from the sub- stantiality of the evidence.
Nippon Steel Corp. v. United States, 337 F.3d 1373, 1379 (Fed. Cir. 2003) (cleaned up); see also SSIH Equip. S.A. v. U.S. Int’l Trade Comm’n, 718 F.2d 365, 382 (Fed. Cir. 1983) (if Commerce makes a choice be- tween “two fairly conflicting views,” the court may not substitute its judgment even if its view would have been different “had the matter been before it de novo”) Ct. No. 24-00098 Page 11
(quoting Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951)).
The court also reviews determinations to ensure the agency engaged in “reasoned decisionmaking,” meaning its result must be “within the scope” of its au- thority and “the process” it uses to reach that outcome “must be logical and rational.” Michigan v. EPA, 576 U.S. 743, 750 (2015). Reasoned decisionmaking re- quires the agency to “examine the relevant data and articulate a satisfactory explanation . . . including a rational connection between the facts found and the choice made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) (cleaned up). But courts will “uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.” Id.
IV
School Specialty launches a broad attack on Com- merce’s determination. The importer challenges cer- tain of the Department’s findings, its balancing of the § 351.225(j) factors, and its asserted failure to address the Customs ruling that the Philippines is the country of origin of the pencils in question.
A
School Specialty disputes Commerce’s findings about the “physical characteristics . . . of the product” Ct. No. 24-00098 Page 12
and “where the essential characteristics of the product are imparted.” 19 C.F.R. § 351.225(j)(1)(ii), (j)(2) (em- phasis added). It asserts that the Department erred in considering the characteristics of a single input— wooden slats—rather than of “a finished pencil” con- sisting of “a graphite core encased in wood.” ECF 27, at 23. It argues that in light of the word “product” in the regulation, the agency’s focus on the former rather than the latter was unlawful. Id. at 22–23.
To begin with, it’s not true that Commerce only ex- amined the physical characteristics of a “single input,” the wooden slats. The Department considered and ad- dressed the export-country processing of each “Chi- nese-origin input[].” Appx000430. Three of the four— “graphite/color cores, ferrules, and erasers”—were “not further processed in the Philippines,” id., mean- ing their essential characteristics were imparted in China. The agency focused on the wooden slats not be- cause it was “justify[ing] its foregone conclusion,” ECF 27, at 26, but because they were the sole compo- nent that underwent additional processing in the Phil- ippines, Appx000430.
The court also disagrees with School Specialty’s contention that (j)(1)(ii) and (j)(2) preclude the Depart- ment from considering characteristics of a product’s inputs. The § 351.225(j) factors are “not exhaustive.” 86 Fed. Reg. at 52,321; see also 19 C.F.R. § 351.225(j)(1) (stating that the agency “may” consider “relevant factors that arise on a case-by-case basis, Ct. No. 24-00098 Page 13
including” those enumerated) (emphasis added). Com- merce plainly has the discretion to consider the physi- cal and essential characteristics both of inputs and the final product.
Finally, School Specialty in effect argues that even if the Department properly considered the inputs’ characteristics, its discounting the significance of the processing in the Philippines requires remand. The importer points to the grooving of slats; the wrapping of the graphite core with grooved slats that are then glued, called “sandwiching”; the rounding or hexago- nal shaping of the “sandwich”; and sanding. See ECF 27, at 25–26; see also Appx000015–000017 (the scope application’s description of the processing in that country).
Commerce, however, acknowledged that those and other processing steps are performed in the Philip- pines. See Appx000429–000430; see also Appx000431 (“[S]ome physical characteristics of the cased pencil may be imparted in the further production steps in the Philippines . . . .”). It explained that even with those measures, the wooden slats are “prefabricated in China to the specific dimensions to be placed in School Specialty’s pencil production machinery.” Appx000430 (emphasis added). That fact led it “to conclude that the essential characteristics of these wooden slats, i.e., that they are to be used specifically for pencil produc- tion and associated pencil machinery, are imparted in China.” Id. As the other inputs—the “graphite/color Ct. No. 24-00098 Page 14
cores, ferrules, and erasers”—were not further pro- cessed in the Philippines, overall “these cased pencil components retain their original general physical and essential characteristics when assembled into a com- plete cased pencil.” Id. (emphasis added). 10
Although the further processing of the wood slats in the Philippines emphasized by School Specialty might have permitted the Department to reach the contrary conclusion, it did not compel such a result. “Where two different, inconsistent conclusions may reasonably be drawn from the evidence in [the] record, an agency’s decision to favor one conclusion over the other is the epitome of a decision that must be sus- tained upon review for substantial evidence.” In re Morsa, 713 F.3d 104, 109 (Fed. Cir. 2013) (brackets omitted) (quoting In re Jolley, 308 F.3d 1317, 1329 (Fed. Cir. 2002)). As the agency reasonably explained why it found the “cased pencil components retain[ed] their original general physical and essential charac- teristics when assembled,” Appx000430, the court sus- tains this weighing of the evidence.
10 School Specialty incorrectly charges that the Depart- ment impermissibly blurred the (j)(1)(ii) “physical charac- teristics” and (j)(2) “essential characteristics” factors to- gether. See ECF 27, at 25. Although the agency discussed the two together, in so doing it also recognized the distinc- tion. See Appx000430–000431. Ct. No. 24-00098 Page 15
School Specialty assails Commerce’s (j)(1)(iii) find- ing that the Chinese “inputs were pre-determined for a specific end use at the time of importation,” Appx000431, arguing that the processing in the Phil- ippines “undoubtedly” changes their end use since they cannot be used to write or draw when they leave China, ECF 27, at 27. It claims the Department im- properly emphasized the manufacture of the unassem- bled components when the regulation provides only for consideration of the end use “of the downstream prod- uct, not whether upstream inputs undergo prefabrica- tion.” Id. at 28 (emphasis in original and citation omit- ted). Thus, in the importer’s telling, the agency’s fixa- tion on the Chinese processing “ignor[es] the signifi- cant manufacturing” undertaken in the Philippines, id. at 29, thereby negating “the very purpose of this factor,” id. at 28.
The court disagrees. As was its prerogative given its flexibility in applying the (j)(1)(iii) factor, the De- partment compared the “intended end use” of the Chi- nese inputs to that of the finished pencils. It found that the wooden slat and graphite/color core inputs have no other purpose than to be manufactured into pencils by the time they reach the Philippines. Appx000431. And although the former are processed further to create the finished product, “they are imported from China pre- fabricated to the specific dimensions” so they fit “School Specialty’s pencil production machinery.” Id. Commerce thus concluded that the components had Ct. No. 24-00098 Page 16
been processed in China “to the point where their physical and essential characteristics are specifically tailored for the assembly of cased pencils” such that this factor militated against a finding of substantial transformation. Id.
So, contrary to the importer’s claims, the agency did not “fixate” on prefabrication of the wooden slats in China. Instead, the Department reasonably concluded that the “intended end use” of the inputs and the final product was the same. It is School Specialty’s argu- ment, not the agency’s, that would “negate[] the very purpose of the factor,” ECF 27, at 28, by “rendering the substantial transformation analysis moot, because the country of origin would always be where the product was finished” for highly tailored inputs like those here. Appx000432. Commerce’s finding about intended end use is supported by substantial evidence.
School Specialty challenges Commerce’s (j)(1)(v) finding that the “nature and sophistication” of the third-country processing weighed against substantial transformation. Appx000432. Recall that the agency reasoned that “six of the nine production steps that oc- cur[red] in the Philippines . . . amount[ed] to simple assembly of the cased pencils.” Id. And although the three others involved additional processing of the wooden inputs, these components were “prefabricated in China,” absent which they would be “unusable.” Id. Ct. No. 24-00098 Page 17
According to the importer, the agency erred by con- ducting a “mere comparison between the downstream and upstream processing,” which the court has found “does not aid in the substantial transformation in- quiry.” ECF 27, at 30 (quoting Bell Supply Co. v. United States, 348 F. Supp. 3d 1281, 1291 n.9 (CIT 2018)). It claims the Department “summarily dis- missed” the downstream steps for no other reason than “they followed prefabrication of the wooden slats in China.” Id. at 31. And it asserts the agency’s rea- soning implies that the manufacturing steps under- taken in the Philippines did not rise to the “requisite level of sophistication” because they amounted to “mere assembly.” Id. at 32–33.
School Specialty claims that logic is misguided for two reasons. First, “Commerce did not even refer to the critical . . . construction steps . . . involved in” making the pencils. Id. at 33. Second, even if all those steps were mere “assembly,” the Department’s “simpl[e] counting” of steps “as a proxy for sophistication of pro- cessing—without any analysis of each step’s individ- ual significance, and the degree of transformation in- volved—is overly simplistic, and completely discon- nected from the facts.” Id.
The court disagrees. School Specialty simply ig- nores the agency’s critical finding that the Philippine processing steps emphasized by the importer—the “grooving, sandwiching, and shaping” of wooden slats, Appx000432—were not “transformative in their own Ct. No. 24-00098 Page 18
right,” id. That’s because these inputs were “prefabri- cated in China to the specific dimensions” of the “pro- duction machinery.” Id. They “possess[ed] no . . . use outside of the manufacturing and assembly of cased pencils,” and the importer did not contend otherwise. Appx000433 (emphasis added). That undisputed find- ing clears the low bar of substantial evidence.
Once again, although the record might have per- mitted the Department to reach the conclusion urged by School Specialty, it did not compel such a result. The court therefore sustains Commerce’s (j)(1)(v) find- ing. See Morsa, 713 F.3d at 109.
School Specialty contests Commerce’s (j)(1)(iv) and (j)(1)(vi) findings that the record was “insufficient” for the agency to evaluate the “cost of production/value added” and the “level of investment” in the Philip- pines. Appx000433. The Department reached that con- clusion because the importer “did not provide quanti- tative information” for these elements, which the agency “typically need[s]” to make its evaluation. Id.
The latter complains that Commerce “ignored qual- itative record evidence” which shows the Philippine processing “undoubtedly adds significant value to the raw inputs.” ECF 27, at 34. Additionally, School Spe- cialty argues that if the Department viewed the record as inadequate, it should have requested the “addi- tional information” it needed. Id. at 35. The importer Ct. No. 24-00098 Page 19
claims the agency’s purported failure to consider the qualitative evidence, coupled with the failure to ask for whatever else it needed, “rendered its analysis . . . incomplete and not in accordance with law.” Id.
The government responds that School Specialty’s submissions, which lacked hard numbers, did not al- low Commerce to “sufficiently compare the costs and investments between the Philippines and China.” ECF 32, at 40. It argues that these inquiries are quan- titative and that the importer “does not explain” how its qualitative submissions allowed such an analysis. Id. The government also notes that requesting supple- mental information is committed to agency discretion and that the burden of production is on the party in possession of the information. Id. at 40–41.
The court agrees with the government. To begin with, subparagraph (j)(1)(iv) of the regulation speaks exclusively to quantitative, not qualitative, considera- tions. 11 It refers to the “cost of production/value added of further processing in the third country.” 19 C.F.R. § 351.225(j)(1)(iv) (emphasis added). School Specialty relies on the phrase “value added of further pro- cessing” to contend that its photographs and written description showed “added value” in the Philippines. ECF 27, at 34. But “cost of production” in the same
11 School Specialty does not dispute that subparagraph (j)(1)(vi) is concerned with quantitative considerations. See 19 C.F.R. § 351.225(j)(1)(vi) (referring to the “level of in- vestment in the third country”). Ct. No. 24-00098 Page 20
clause plainly refers to quantitative information. In the law, as in life, “birds of a feather flock together.” Scalia & Garner, Reading Law: The Interpretation of Legal Texts 195 (2012). Under the canon of noscitur a sociis, when words “are associated in a context sug- gesting that [they] have something in common, they should be assigned a permissible meaning that makes them similar.” Id. Here, to assign a qualitative mean- ing to “value added of further processing” would be in- congruent with the adjacent phrase “cost of produc- tion.” 12
What’s more, the importer is wrong to say the De- partment ignored the (irrelevant for these purposes) qualitative information on the record. The agency identified the “photos and descriptions of the work done in the Philippines,” discussed the conclusions it could draw from that evidence, and found it “insuffi- cient” because the record lacked the “quantitative” data necessary to “assess the level of investment re- quired for the country-specific set of production steps
12 This reading is reinforced by the neighboring subpara-
graph (v), which refers to “[t]he nature and sophistication of processing in the third country.” 19 C.F.R. § 351.225(j)(1)(v). This phrase manifestly speaks to quali- tative considerations. To read subparagraph (iv) as also en- compassing those concerns would render subparagraph (v) “altogether redundant” and thereby violate the surplusage canon. Scalia & Garner, at 176. Ct. No. 24-00098 Page 21
School Specialty conducted.” Appx000433. 13 That can hardly be characterized as “ignor[ing] qualitative rec- ord evidence.” ECF 27, at 34.
Commerce also explained why it “need[ed] the un- derlying cost data” to evaluate these factors, and even listed the evidence School Specialty could have pro- vided to assist that determination. Appx000433. The latter does not dispute that it had access to the rele- vant information at the time of the investigation. It cannot now complain that its own failure to provide that information is the Department’s fault, 14 since the burden of creating an adequate record lay with the im- porter. See QVD Food Co. v. United States, 658 F.3d 1318, 1324 (Fed. Cir. 2011). The Department’s finding
13 In its reply brief, School Specialty complains for the first
time that Commerce incorrectly characterized it as per- forming processing in the Philippines. See ECF 37, at 12 n.1. According to the importer, a third party did that work. See note 6. At worst, any error by the Department in this regard was harmless, as its rationale did not turn on the Philippine producer’s asserted affiliation. In any event, School Spe- cialty waived the issue by failing to raise it sooner. 14 Cf. Marks v. Comm’r, 947 F.2d 983, 986 (D.C. Cir. 1991) (“It is quite apparent that the reason the Markses kept the Commissioner—and the government—unapprised of their whereabouts was because they were fugitives from crimi- nal prosecution. To turn around and blame the Commis- sioner for not finding them runs afoul of this court’s devel- oping ‘chutzpah’ doctrine.”). Ct. No. 24-00098 Page 22
on these factors is thus supported by substantial evi- dence.
Finally, School Specialty is understandably happy with Commerce’s finding under 19 C.F.R. § 351.225(j)(1)(i) that its “processed downstream prod- ucts”—pencils—are “a different class or kind of mer- chandise than the upstream” Chinese-made inputs, as this supports a conclusion of substantial transfor- mation. But it complains that the Department “failed to explain how it weighed” this determination “against other competing factors” on which the agency appar- ently relied. ECF 27, at 20.
The government first responds by observing, correctly, that Commerce need not “quantify or mathematically compare the factors,” ECF 32, at 19, although that mischaracterizes School Specialty’s argument. It next contends that the Department’s rationale is reasonably discernable, as it considered its individual findings “as a whole to come to the conclu- sion that the ‘totality of the factors’ weighed against a finding of substantial transformation.” Id. at 20.
The court disagrees. Commerce’s determination lacks any discussion of how it balanced its various (j)(1) and (j)(2) findings—it simply announced its con- clusion by talismanically invoking the “totality of the factors.” Appx000433. We thus don’t know on these facts why the agency concluded the various factors Ct. No. 24-00098 Page 23
pointing against substantial transformation out- weighed the one supporting a contrary finding.
The Department correctly noted that “[i]n conduct- ing a substantial transformation analysis, . . . the weight of any one factor can vary from case to case and depends on the particular circumstances unique to the products at issue.” Appx000423. It is precisely for this reason that Commerce has a duty to explain its bal- ancing of the § 351.225(j) criteria when, as here, its findings point in opposite directions. See Bell Supply, 348 F. Supp. 3d at 1295 (“Although a totality of the circumstances analysis eschews bright line rules for balancing, Commerce must explain how each factor weighs in the balance and why.”); compare BYD, Slip Op. 25-60, at 17, 2025 WL 1420318, at *6 (sustaining Commerce’s circumvention determination under 19 U.S.C. § 1677j(b) because, among other reasons, the agency “reasonably explained why it assigned prepon- derant weight” to research and development, one of the five statutory factors to be balanced), with Trina Solar (Vietnam) Sci. & Tech. Co. v. United States, Slip Op. 25-62, at 12–13, 2025 WL 1556437, at **4–5 (CIT May 19, 2025) (remanding a circumvention determina- tion because the agency failed to explain its balancing of the relevant statutory factors). A remand is thus necessary for the agency to provide the missing expla- nation. As Judge Friendly observed, “The necessity for justification is a powerful preventive of wrong deci- sions.” Henry J. Friendly, Some Kind of Hearing, 123 U. Pa. L. Rev. 1267, 1292 (1975). Ct. No. 24-00098 Page 24
B
School Specialty submitted a Customs ruling to Commerce in which the former agency found—based on the same fact pattern as here—that the pencils in question originated in the Philippines. Appx000299– 000301. 15 The importer challenges the Department’s failure to substantively address what it describes as that “undoubtedly” relevant determination, which it contends “fairly detracts from” Commerce’s conclusion here. ECF 27, at 38–39 (internal quotation marks omitted).
The government responds that the Department acknowledged the ruling, noted that Customs uses a different substantial-transformation test, 16 and ob- served that the latter agency’s findings are not binding
15 Customs invoked 19 C.F.R. pt. 177 as its authority to is-
sue this ruling. Appx000300. On this record, it’s unclear on what basis School Specialty requested it. 16 See 86 Fed. Reg. 52,300, 52,321 (Commerce explaining
“that different Federal agencies apply different country of origin tests, depending on the context and purpose of the test . . . .”); see also Bell Supply, 348 F. Supp. 3d at 1287 n.6 (discussing the “‘name, character and use’ test, which evolved in Customs law”); Appx000300 (Customs ruling ad- dressing School Specialty’s pencils stating that “[s]ubstan- tial transformation requires that [t]here must be a trans- formation; a new and different article must emerge, having distinctive name, character, or use”) (internal quotation marks omitted and citing Anheuser-Busch Brewing Ass’n v. United States, 207 U.S. 556, 562 (1908)). Ct. No. 24-00098 Page 25
on the former. ECF 32, at 42. Thus, it argues that Commerce reasonably determined that the Customs ruling was not probative. Id. at 45.
The court agrees that the Customs ruling was not probative, but for a different reason. That decision con- tained no analysis—the agency instead peremptorily announced its conclusion after stating the background facts and the applicable test: “The work performed in the Philippines on the various components that are made in China and shipped” to the former country “for manufacture into the completed pencils [has] effected a substantial transformation of those components and, therefore, the country of origin of the imported pencils is the Philippines.” Appx000300. How and why the agency reached that conclusion is an unexplained mys- tery.
Because Customs’s ipse dixit ruling lacks any “jus- tification” for its result, cf. Friendly, 123 U. Pa. L. Rev. at 1292, it is not even persuasive authority. It thus does not fairly detract from Commerce’s decision here, and the Department did not err by failing to further address it, for there was nothing else to say.
* * * Ct. No. 24-00098 Page 26
The court sustains Commerce’s determination in part and otherwise remands for further proceedings consistent with this opinion.
Dated: July 31, 2025 /s/ M. Miller Baker New York, NY Judge