Customs valuation of royalty payments under a technical assistance agreement was left unresolved and referred to a Third Member.

Royalty and lump-sum licence fee under a technical assistance agreement were examined for inclusion in the assessable value of imported goods under customs valuation rules. One view held the payments were for manufacture of finished products, not a condition of sale of the imported components, because the importer was not required to source goods only from the licensors and the royalty was linked to net sale price after deduction of imported components; on that view, addition to import value was not attracted. The contrary view found a nexus between the imported components and the royalty formula, treating the payments as connected with the sale arrangement. The matter was not finally resolved and was referred to a Third Member.

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Issues: Whether the royalty and lump-sum licence fee paid under the technical assistance agreement were includible in the assessable value of imported goods under the customs valuation rules.

Analysis: One view held that the agreement did not oblige the importer to source goods only from the licensors, that the royalty was computed on the net sale price of manufactured goods after deducting imported components, and that the payment was for manufacture of finished products and not a condition of sale of the imported components; accordingly, the rule governing addition of royalty to imported value was not attracted. The contrary view held that the agreement and royalty formula showed a nexus between the imported components and the royalty payment, that the deduction clause did not permit exclusion of every imported component, and that the royalty was connected with the imported goods and payable as part of the sale arrangement.

Conclusion: The issue was not finally resolved by the Bench and was referred for decision by a Third Member.

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