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