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3.4 Alternative Valuation Methods: Deductive, Computed, and Fallback
U.S. Customs Broker License Examination CBLE
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1 Chapter 1: Exam Logistics, Eligibility, and Professional Governance
1.1 CBLE Examination Format, Scoring, and Category Structure 1.2 Eligibility Requirements, Application Procedures, and License Issuance 1.3 Triennial Status Reporting and Continuing Education Requirements 1.4 Statutory Fees, Application Vetting, and Appeals of Adverse Decisions
2 Chapter 2: Harmonized Tariff Schedule Classification Principles
2.1 HTSUS Structure, Legal Hierarchy, and Chapter Notes 2.2 General Rules of Interpretation 1 through 4 2.3 GRIs 5 and 6 and Classification Doctrines 2.4 Chapter 98 Special Classification Provisions 2.5 CBP Rulings, CROSS, and Classification Research (19 CFR Part 177) 2.6 Textile and Apparel Classification (Section XI)
3 Chapter 3: Customs Valuation and Appraisement
3.1 The Valuation Hierarchy and Price Actually Paid or Payable 3.2 Statutory Additions and Exclusions from Transaction Value 3.3 Related-Party Transactions and First Sale for Export 3.4 Alternative Valuation Methods: Deductive, Computed, and Fallback 3.5 Allowances for Shortage, Damage, Casualty, and Abandonment (19 CFR Part 158) 3.6 The Rate of Duty Date and the Entered Value Declaration
4 Chapter 4: Right to Make Entry, Documentation, and Entry Procedures
4.1 Right to Make Entry and Customs Power of Attorney 4.2 Entry Filing, Immediate Delivery, and CBP Form 3461 4.3 Entry Summary, CBP Form 7501, and Automated Commercial Environment 4.4 Entry Types, Informal Entry, and In-Bond Transit 4.5 Commercial Invoice and Entry Documentation Requirements (19 CFR Part 141, Subpart F) 4.6 Importer of Record Numbers, CBP Form 5106, and Schedule D Port Codes 4.7 The Practical Exercise: Working a 7501, an Invoice, and a 5106 Under Time Pressure 4.8 Examination, Detention, Conditional Release, and Redelivery
5 Chapter 5: Customs Bonds and Revenue Protection
5.1 Customs Bond Structure, Parties, and Legal Obligations 5.2 Continuous vs. Single Transaction Bonds and Activity Codes 5.3 Bond Formula Calculations, Sufficiency, and Breach
6 Chapter 6: Liquidation, Protests, and Post-Summary Adjustments
6.1 Liquidation Process, Bulletin Notice, and Statutory Deemed Liquidation 6.2 Administrative Protests and Judicial Review 6.3 Post Summary Corrections and Reconciliation
7 Chapter 7: Country of Origin, Marking Rules, and Trade Agreements
7.1 Substantial Transformation and Origin Determination 7.2 Country of Origin Marking and Exceptions 7.3 United States-Mexico-Canada Agreement (USMCA) 7.4 Other Free Trade Agreements and Preference Programs
8 Chapter 8: Customs Duties, Taxes, User Fees, and Trade Remedies
8.1 Duty Calculations: Ad Valorem, Specific, Compound, and Column Rates 8.2 Customs User Fees: Merchandise Processing Fee and Harbor Maintenance Fee 8.3 Trade Remedy Measures: Antidumping, Countervailing, Section 301, and Section 232
9 Chapter 9: Customs Broker Licensure, Operations, and Compliance
9.1 Broker Licensing, National Permits, and Office Supervision 9.2 Responsible Supervision and Control 9.3 Broker Duties, Diligence, Funds Handling, and Prohibited Relations 9.4 Recordkeeping, Customs Audits, and Disciplinary Sanctions 9.5 "Customs Business" Defined and Unlicensed Practice 9.6 Change Notifications and Broker Employee Reporting (19 CFR 111.28(b), 111.30)
10 Chapter 10: Special Regimes, Drawback, Enforcement, and Partner Government Agencies
10.1 Foreign Trade Zones and Customs Bonded Warehouses 10.2 Duty Drawback: Manufacturing and Unused Merchandise 10.3 Customs Enforcement, Section 1592 Penalties, and Prior Disclosure 10.4 Partner Government Agencies and Border Security Compliance 10.5 Intellectual Property Rights Border Enforcement (19 CFR Part 133)
11 Chapter 11: Quota Administration and the Rotating Specialty Category
11.1 Absolute and Tariff-Rate Quotas: Definitions, Establishment, and Administration 11.2 Quota Priority, the Opening Moment, and Prorating 11.3 Quota Interactions: Foreign Trade Zones, Warehouses, Visas, and Bonds
3.4 Alternative Valuation Methods: Deductive, Computed, and Fallback
Key Takeaways Explain This Topic AI
Deductive Value under 19 U.S.C. § 1401a(d) begins with the U.S. resale unit price in the greatest aggregate quantity to unrelated buyers, subtracting U.S. profit/expenses, freight, duties, and taxes.
The Greatest Aggregate Quantity (GAQ) rule identifies the specific unit price at which the largest cumulative number of units is sold in individual or grouped transactions—not the highest price or weighted average.
Computed Value under 19 U.S.C. § 1401a(e) reconstructs the foreign manufacturer's costs, including materials, fabrication, country-of-export general expenses and profit, packing, and assists.
The Fallback Method under 19 U.S.C. § 1401a(f) permits flexible, reasonable adaptations of preceding valuation methods using data available in the United States.
19 U.S.C. § 1401a(f)(2) strictly prohibits seven appraisement practices, including American Selling Price, foreign domestic prices, third-country export prices, and arbitrary or fictitious values.
Last updated: September 2026
3.4 Alternative Valuation Methods: Deductive, Computed, and Fallback
Quick Answer: When transaction value cannot be established under 19 U.S.C. § 1401a(b) and identical or similar merchandise values are unavailable under § 1401a(c), customs appraisers and brokers must turn to the secondary valuation bases. Deductive Value (§ 1401a(d)) works backward from the U.S. resale price in greatest aggregate quantity, deducting U.S. markups, freight, and duties. Computed Value (§ 1401a(e)) works forward by tallying the foreign producer's actual material, fabrication, and overhead costs plus typical home-country profit. If both fail, the Fallback Method (§ 1401a(f)) allows flexible adaptation of the prior rules, strictly constrained by seven statutorily prohibited appraisement practices.
Transaction Value of Identical and Similar Merchandise
Before reaching Deductive or Computed Value, the statute mandates consideration of Identical Merchandise and Similar Merchandise under 19 U.S.C. § 1401a(c) and 19 CFR 152.104:
Identical Merchandise (19 U.S.C. § 1401a(h)(2)): Merchandise that is the same in all respects, including physical characteristics, quality, and reputation, produced in the same country by the same person (or another producer if none from the same producer exists).
Similar Merchandise (19 U.S.C. § 1401a(h)(4)): Merchandise produced in the same country that, while not alike in all respects, has like characteristics and component materials that enable it to perform the same functions and be commercially interchangeable.
Temporal & Commercial Adjustments: The comparison transaction value must be for merchandise exported at or about the same time as the goods being appraised, and adjusted for differences in commercial level and quantity.
Deductive Value (19 U.S.C. § 1401a(d) / 19 CFR 152.105)
Deductive value is a "top-down" calculation based on the unit price at which the imported merchandise, or identical or similar merchandise, is sold in the United States in its condition as imported. ┌────────────────────────────────────────────────────────┐
- │ Deductive Value Resale Calculation Flow │
- └───────────────────────────┬────────────────────────────┘
- │
- ▼
- Resale Price in U.S. in Greatest Aggregate Quantity
- [Sold to unrelated buyers at/about time of importation]
- │
- ┌────────────────────┴───────────────────┐
- ▼ ▼
- LESS: Commissions OR Profit LESS: Transportation & Insurance
- and General Expenses (U.S.) (International and domestic freight)
- │ │
- └────────────────────┬───────────────────┘
- │
- ▼
- LESS: U.S. Customs Duties & Federal Taxes
- [Plus state/local taxes & further processing]
- │
- ▼
- DEDUCTIVE CUSTOMS VALUE
- The Greatest Aggregate Quantity (GAQ) Rule
Under 19 CFR 152.105(c), the starting unit price is the price at which the greatest number of units is sold to unrelated purchasers in the first commercial transaction after importation. It is not the highest price, nor the lowest price, nor an average price.
GAQ Worked Scenario
An importer sells a shipment of 1,000 imported watches in the U.S. across five separate sales:
- Sale Transaction Quantity Sold Unit Resale Price Cumulative Quantity at this Price
- Sale 1 300 units $100 300 units
- Sale 2 250 units $90 250 units
- Sale 3 150 units $100 300 + 150 = 450 units
- Sale 4 200 units $85 200 units
- Sale 5 100 units $90 250 + 100 = 350 units
Calculation: Grouping the sales by price point:
- At $85: 200 units
- At $90: 350 units (250 + 100)
- At $100: 450 units (300 + 150)
The price at which the greatest aggregate quantity of units was sold is $100 per unit (450 units total). Thus, $100 is the statutory starting unit price.
Mandatory Statutory Deductions under Deductive Value
Once the starting unit price is established, 19 U.S.C. § 1401a(d)(3) directs the deduction of:
Commissions or Profit & General Expenses: Either the commissions usually paid or agreed to be paid, OR the addition usually made for profit and general expenses (taken as a whole) in connection with sales in the United States of imported merchandise of the same class or kind.
Transportation & Insurance Costs: The actual costs of transportation and insurance incurred from the place of shipment in the foreign exporting country to the U.S. destination (international ocean/air freight, marine insurance, and U.S. inland transit).
Customs Duties and Federal Taxes: U.S. customs duties, federal excise taxes, and other federal user fees payable by reason of importation.
State and Local Taxes: State sales taxes and local taxes actually paid or payable.
Further Processing (Super-Deductive): Under 19 U.S.C. § 1401a(d)(2)(D), if the goods are not sold in the condition as imported but undergo further assembly, fabrication, or processing in the U.S. prior to sale, the importer may elect deductive value based on the resale price of the finished product, deducting the value added by further U.S. processing.
Computed Value (19 U.S.C. § 1401a(e) / 19 CFR 152.106)
Computed value is a "bottom-up" calculation that reconstructs the foreign manufacturer's production cost. It requires the voluntary cooperation of the foreign manufacturer in opening its confidential financial ledgers to CBP verification.
Elements of Computed Value
Under 19 U.S.C. § 1401a(e)(1), computed value is the sum of:
Materials and Fabrication: The cost or value of materials and fabrication and other processing of any kind employed in producing the imported merchandise.
Profit and General Expenses: An amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by producers in the country of exportation for export to the United States.
Packing Costs: All containers, coverings, labor, and materials incident to packing the merchandise for shipment to the U.S.
Assists: The value of any dutiable assists supplied by the buyer, to the extent not already included in materials and fabrication.
PRACTICAL LIMITATION: Computed value is rarely utilized in non-related transactions because foreign producers refuse to share proprietary cost accounting ledgers with foreign customs authorities. It is most commonly applied in parent-subsidiary corporate relationships.
The Fallback Method (19 U.S.C. § 1401a(f) / 19 CFR 152.107)
When customs value cannot be determined under any of the preceding five methods, the merchandise is appraised under Section 1401a(f) using reasonable means consistent with statutory principles, based on data available in the United States.
Permissible Flexible Adjustments
Under the fallback method, CBP may apply the preceding methods with reasonable flexibility:
Temporal Flexibility: The requirement that identical/similar goods or deductive sales occur "at or about the same time" (typically within 90 days of importation) may be reasonably extended (e.g., to 120 or 180 days).
Geographic Flexibility: Similar merchandise produced in a country other than the country of exportation may be considered if no domestic goods exist.
Commercial Flexibility: Deductive value rules may be applied even if the goods were sold to related parties, provided the relationship did not distort the resale price.
The Seven Statutorily Prohibited Valuation Practices
Under 19 U.S.C. § 1401a(f)(2) and 19 CFR 152.108 , customs appraisers are strictly forbidden from basing customs value on any of the following seven methods: ┌────────────────────────────────────────────────────────┐
- │ THE SEVEN PROHIBITED BASES (§ 1401a(f)(2)) │
- ├────────────────────────────────────────────────────────┤
- │ 1. American Selling Price (U.S. domestic selling price)│
- │ 2. System using the higher of two alternative values │
- │ 3. Price of goods in the domestic export market │
- │ 4. Production cost other than statutory computed value │
- │ 5. Price of goods for export to a third country │
- │ 6. Minimum customs values │
- │ 7. Arbitrary or fictitious values │
- └────────────────────────────────────────────────────────┘
American Selling Price (ASP): The selling price in the United States of merchandise produced in the United States.
Higher of Two Alternative Values: A system which provides for the appraisement of imported merchandise at the higher of two alternative values.
Domestic Foreign Market Price: The price of merchandise in the domestic market of the country of exportation (e.g., Japanese domestic wholesale price for Japanese cars).
Non-Statutory Production Costs: A cost of production, other than a value determined under Computed Value (1401a(e)) for identical or similar merchandise.
Third-Country Export Price: The price of merchandise for export to a country other than the United States (e.g., producer's price for export to Canada or the European Union).
Minimum Customs Values: Fixed or arbitrary minimum values established by customs administrative tables.
Arbitrary or Fictitious Values: Speculative or unverified numbers unsupported by commercial reality.
Comparison Table of Alternative Appraisement Methods
Method Core Premise Primary Data Source Key Statutory Condition / Exclusion
Deductive Value (§ 1401a(d)) Top-down resale calculation U.S. wholesale customer invoices Greatest aggregate quantity rule; deduct U.S. profit/expenses, freight, and duties
Computed Value (§ 1401a(e)) Bottom-up cost accumulation Foreign producer's cost ledgers Includes country-of-export general expenses + profit; requires foreign verification
Fallback Method (§ 1401a(f)) Flexible adaptation of methods 1–5 U.S. commercial market data Reasonable means; strictly bound by seven § 1401a(f)(2) prohibitions
Prohibited Bases (§ 1401a(f)(2)) Unlawful appraisement practices Disallowed benchmarks ASP, domestic export price, third-country export price, arbitrary minimums barred