HQ 544105: Decision on Application for Further Review of Protest No. 3901-7-000064

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                        HQ 544105

                                        March 25, 1988

          CLA-2 CO:R:CV:V  544105 EK

          CATEGORY:  Valuation

          District Director of Customs
          Chicago, Illinois

          RE:  Decision on Application for Further Review of Protest
               No. 3901-7-000064

          Dear Sir:

                This protest was filed against your decision in the
          liquidation of Entry No. 534044 dated October 24, 1986.  The
          protesting party is disputing the inclusion of a royalty payment
          in the transaction value of imported merchandise pursuant to
          section 402(b) of the Tariff Act of 1930, as amended by the Trade
          Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)).


          FACTS:

                The merchandise in question was properly appraised pursuant
          to transaction value, section 402(b) of the TAA.  The importer
          purchases from the foreign seller color chips used in ink
          formulation in the production of dry erase markers.  In addition
          to the price paid by the importer, the foreign seller also
          furnished the importer with the ink formulation for processing
          the chips.

                The agreement was in effect for a three-year period from
          October, 1982, through September, 1985.  The amount of the
          payment was based upon net sales of all dry erase markers sold by
          the importer annually.  The royalty was paid on the basis of the
          sale of the fully manufactured product, dry erase markers.  These
          dry erase markers contain the ink produced by the importer from
          the color chips and technology supplied by the seller.  The
          importer states that the royalty became due to the seller even
          when the color chips used to produce the black ink were not
          provided by the seller but rather, were supplied to the importer
          from another company.  



















                                        - 2 -

          ISSUE:

                Whether the royalty payments made by the importer are to be
          included in the transaction value of the imported merchandise.

          LAW AND ANALYSIS:

                Transaction value is the preferred method of appraisement
          and is defined in section 402(b) of the TAA as:

                . . . the price actually paid or payable for the
                merchandise when sold for exportation to the
                United States, plus amounts equal to . . . any
                royalty or license fee related to the imported
                merchandise that the buyer is required to pay,
                directly or indirectly, as a condition of the sale
                of the imported merchandise for exportation to the
                United States . . .

                An addition will be made for a royalty fee paid by the
          buyer to the seller, unless the buyer can establish that such
          payment is distinct from the "price actually paid or payable" for
          the imported merchandise, and that it was not a condition of the
          sale of the imported merchandise.

                In this case, it appears as if the payment of the royalty
          is not a condition of the sale.  The royalty is paid for
          technology and assistance in connection with the manufacture and
          use of inks.  The royalty payment is based upon net sales
          subsequent to importation and becomes due even though the markers
          are produced without any color chip supplied by the seller.  The
          fees which are paid by the importer are separate from the right
          to import the color chip.

          HOLDING:

                In view of the foregoing, it is our conclusion that the
          royalty payments are not to be added to the "price actually paid
          or payable" to arrive at a proper transaction value.

                Accordingly, you should grant the protest. A copy of this
          decision should be attached to Form 19, Notice of Action, to be
          sent to the protestant.

                                        Sincerely,



                                        John Durant
                                        Acting Director, Commercial
                                        Rulings Division