Smuggled products constitute around $2 billion or 25% of Iran’s annual apparel market, according to the secretary of Textile and Apparel Producers and Exporters Union.
“At present, Iran’s apparel market is worth $8 billion. The figure shows a decline compared with the fiscal 2017-18 when the market size was more than $12 billion. The main reasons are the Covid-19 pandemic that has influenced the global clothing market, in addition to the depreciation of rial against the dollar,” Saeed Jalali Qadiri was also quoted as saying by the news portal of Tehran Chamber of Commerce, Industries, Mines and Agriculture.
The official noted that per capita apparel consumption has dropped from $150 to $100 over the period under review.
“Presently, the lion’s share of apparel smuggled into Iran are off-season brands sold at discounted prices that happen to be even lower than the production cost and that of the raw materials combined with price tags no one can compete with," he added.
He called on responsible officials to take urgent measures to combat contraband apparel in the market and lend support to domestic manufacturers.
Garment manufacturers are grappling with recession due to smuggling, shortage of raw materials, a sharp decline in purchasing power and lower consumption due to the outbreak of Covid-19, reads a recent letter by the union addressed to Interior Minister Ahmad Vahidi and published by the news portal of Tehran Chamber of Commerce, Industries, Mines and Agriculture.
“Given the $2 billion share of smuggling in the $8 billion market of clothing in Iran and its upsurge in recent months, shortage of raw materials and equipment needed by factories, as well as the sharp decline in clothing consumption and people’s purchasing power due to Covid-19, clothing and related industries have fallen into recession. Investment is going downhill despite the low cost of job creation in this economic sector,” Qadiri said.
Iran’s textile and clothing supply chain, with more than 7,900 industrial units and 140,000 trade guilds and employment of one million people only in the production sector, continues to be undermined by smuggling and unregulated, excessive imports via legal channels and agencies such as free and special trade zones, sailors, border markets,
Recommendations
Textile and clothing producers made the following recommendations in their letter:
First, the provisions of the Law on Combating Goods and Currency Smuggling to establish transparent infrastructure in the clothing industry chain must be carried out as soon as possible. These provisions include the establishment of goods identification and tracking systems, communication of Paragraph 4 of Article 18 of the law and the launch of mechanized sales tills. When it comes to combating smuggling, the most important issue is to create transparency along the chain. To reach this end, transparent mechanisms should be gradually established. Unfortunately, the lack of transparency has led to an increase in smuggling and informal activities in the clothing sector.
Second, mechanized sales register must be set up as soon as possible and value added tax needs to be replaced by consumption tax. The connection between VAT and the final consumer is one of the most important issues in creating transparency, but unfortunately at present VAT is levied up to the production stage; the following stages, including wholesalers and retailers, are not subject to this tax. The whole thing results in lack of transparency through the chain and losses that are being inflicted on producers.
Third, the speedy notification of Paragraph 4 of Article 18 of the Law on Combating Goods and Currency Smuggling in the clothing group is urgent. Without communicating this paragraph, which is in fact a guarantee for the implementation of the Anti-Smuggling Law, officers and confiscators of smuggled goods will not be allowed to deal with unidentified smuggled clothing in warehouses under the Anti-Smuggling Law because Article 13 underlines that imported clothes, which don’t have a product ID, amount to contraband only at the supply level.
Also, following the successful implementation of the plan on dealing with smuggled clothes from well-known brands in early 2019 and the failure to communicate Paragraph 4 of Article 18, those who were accused of smuggling are being acquitted; they claim that their confiscated goods are made in Iran. Such a procedure will undermine the fight against smuggling.
Fourth, instructions concerning imported clothing, bags and shoes need to be written with the aim of determining the status of international clothing brands when the ban on imports is lifted.
Fifth, the ban on the presence of smuggled clothes of well-known brands should continue as per the guidelines of the headquarters. Failure to do so will result in their reappearance in the market, undermining previous measures.
Sixth, the step-by-step implementation of this plan to establish the ID code for all imported and domestic goods is important. Fixing the misguided practices that lead to non-transparency in the country is certainly difficult and time consuming. However, it is inevitable in the fight against smuggling.
Special attention should be paid to this issue as well as to introducing fundamental reforms regarding the law on direct tax and value added tax. The private sector calls for precise plans and perseverance in the fight against smuggling.
