The ask to the AC
It is recommended that:
- GS1 invest in mapping the World Customs Organisation (WCO) Harmonized System (HS) to the GS1 Global Product Code (GPC)
- In renegotiation of the GS1-WCO memorandum of understanding (MOU), GS1 should endeavor to shift this to more of a Service Agreement where WCO recognizes the value of HS-GPC mapping, and in return, promotes its use worldwide
What is the harmonized and commodity description classification system (HS)?
The HS system for classification of goods underpins global trade. WCO is the governing body for the HS system. HS codes are used to classify goods primarily for:
- Valuation by Customs for tariff duty and tax collection.
- Risk management by over 100 plus Customs agencies and many more specialist border agencies.
Worldwide, freight forwarding companies employ thousands of staff to enter HS codes based on shipment descriptions. This cost of trade is climbing with the explosion of e-commerce low value goods shipped in parcels. The HS code is already a requirement for fast freight parcels and is now also included in Universal Postal Union (UPU) e-commerce parcel data standard agreed between the UPU and WCO.
What is the relationship between the HS and the GPC classification systems?
- The GPC has a much finer level of granularity providing more precise information on goods
- The granularity results in a one-to-many mapping in some instances
- The GPC is a required field in the GDSN, and the GDSN provides an optional field for HS
- The HS is largely if not exclusively used for business to government data transactions
Can GPC codes replace HS codes?
It highly unlikely the GPC will replace the HS in the foreseeable future. Even though border agencies might find HS codes not fit for purpose (e.g. for risk management), HS codes are now an international requirement for:
- the construction of free trade agreements
- data collection for the statistical measurement of international trade flows.
So, the GPC would act in complementary manner to the HS, rather than a replacement.
What’s the opportunity for GS1?
The opportunities for GS1 are to:
- Progressively gain adoption and use of GS1 standards by border agencies worldwide, thereby driving the greater use of GS1 standards for export industries around the world.
- Reduce costs on GS1 members who are required by law to use HS codes, through the automation of HS lookups e.g. from the GPC codes in the GDSN or GS1 Cloud or web lookup.
- In future, members would be able to transmit trade data directly into border agencies (concept pilot in development between New Zealand and Australia) if the HS code is included.
What is the opportunity for WCO and border agencies?
The intention is not to challenge WCO’s HS code, but rather to assist border agencies. Use of GPC codes in unison with the HS codes would assist border agencies in many ways:
- Duty and tax collection: As HS codes operate at broader level than GPC, it not uncommon for traders to choose the HS code that lowers their duty or tax liabilities
- Risk management: The more granular and contextual GPC descriptions would enable border agencies to undertake better risk assessment than the HS code (it was designed for duty collection)
- Support anti-counterfeiting measures: Access to the combination of product GPC, GTIN and the GLN of the brand owner in the GS1 Cloud would support anti-counterfeiting measures
This visibility at the border would in turn support private sector supply chain traceability applications.
What has changed since GS1 Investigated mapping in 2013?
GS1 reviewed the possible mapping the HS code with the GS1 GPC code in 2013.[1] At that time it was considered a significant task, deemed too time consuming, in relation to the perceived benefit. Since this time there have been a number of important developments:
- The new WCO data model 3, used for electronic lodgment of data into border agencies, now provides for the optional use of alternative identifiers and classifications systems (e.g. GTIN, GPC).
- The GS1 Cloud contains the GPC as a core attribute and thus a mapping would enable automatic imputation of the HS code, and make the use GPC and other GS1 standards more attractive to border agencies to use, for example through scanning of a GTIN.
- The Asia Pacific Economic Council (APEC) 21 member countries, accounting for 50% of world trade, are promoting use of global data standards (incl. GPC and GTIN) and GS1 has made significant in-roads in gaining acceptance of GS1 standards and it is now important for GS1 make use more accessible
- Similarly, the GS1 position in the EU has strengthened in e-commerce trade with the adoption of the CEN harmonized label standards incorporating GS1 SSCC, and the GS1 presence on key EU committees in developing the future of customs (Customs 2025 committee)
The original proposal for mapping was framed around the modernization of US border systems and adoption of the GTIN in the United States Department of Agriculture (USDA). Some limited use has occurred, including recently the use the SSCC to clear meat shipments from Australia. The development of the GS1 Cloud will improve accessibility to GS1 for border risk management, particularly for border agencies without access to electronic data lodgments. The Asia-Pacific MOs recommend that the issue of mapping the HS – GPC is reconsidered, taking account of the above information.
What are the costs and risks?
A mapping between GPC and HS should include mapping with 2 or 3 HS versions, especially the Chinese and American modified versions of the HS. A manual exercise was undertaken by GS1 mapping part of the HS code in 2013 and the estimated time was in the order of 1000 hours’ work, which would cost in order of US $30,000.[2] Even if this estimate proved to be wrong by a 2-fold factor this is small cost relative to potential member and border agency benefits.
While Global Office expertise is required for the mapping exercise, we would encourage the use of outsourcing of the initial mapping to skilled (but inexpensive) labour in Asia to speed up the process. Also, the GDSN already contains the HS attribute and where this is populated may help automate mapping.
The main risk to the project is poor adoption by border agencies. One of the ways to mitigate this risk is to gain support from the WCO to promote GS1 standards and thus the recommendation to use the pending renegotiation of the GS1-WCO MOU to gain WCO support. A further risk is ensuring the successful launch of the GS1 cloud that provides global product coverage for agencies. This is a risk GS1 controls. A further risk GS1 controls is the on-going resource needed to keep the mapping up-to-date as the HS is periodically reviewed (at least every 5 years).[3]
[1] Most recently in 2013 (Industry Engagement SBN May 29 2013, refer to Annex 1, and Issue paper in preparation for REC meeting, by Jean-Christophe GILBERT, July 19 2013, refer to Annex 2).
[2] Based on an average gross US salary of $58,300
[3] Several years ago, the UNSPSC was mapped to the GPC, however, this has not been kept up to date limiting the utility of the mapping