Economy, Business And Markets

Apparel Industry Fighting on Several Fronts

Apparel Industry Fighting on Several FrontsApparel Industry Fighting on Several Fronts

According to figures released by the Anti-Smuggling Organization, apparel tops the list of goods smuggled into Iran. The Islamic Republic of Iran Customs Administration says imports of clothes increased during the first three months of the current Iranian year that started in March.

The domestic apparel market is worth an estimated $12 billion per year, with imports accounting for a quarter of the lucrative retail industry, the Persian weekly, Tejarat-e-Farda reported.

Currently, close to 1,500 manufacturing units and more than 20,000 retail outlets are active in this trade, employing 30,000 and 250,000 people respectively. These units have an annual nominal production capacity of 340,000 tons, yet the market is replete with contraband that at times falls short of quality.

“Contraband clothing is sold everywhere these days, from the subway to shopping centers. Oftentimes, when the cost of legal trade rises, smuggling becomes all the more tempting,” says head of the Import Assembly Alireza Manaqebi.

  Less Risk, Fat Profits

One measure that can and should be taken is to facilitate legal trade and imports and cut red tape, according to Manaqebi.

“For starters, tariffs have to be reduced and preferential tariffs introduced on apparel. Launching a green customs corridor (facilitated customs procedures) for renowned importers and getting rid of cumbersome regulations that have no other role but to increase the cost of economic activities, are other ways of encouraging legal trade.”

The official noted that in Iran the risks involved in smuggling are much less compared to what legal businesses and importers grapple with. While importers normally get caught in the sinuous process of customs formalities, bloated bureaucracy and high taxes/tariffs, smugglers and their minions revel in the high profit margins.

“With the aim to support domestic industries, create jobs and curb dumping, the government, while preferring silence, usually tends to ban or restrict the import of particular goods without raising tariffs.

This practice disturbs the flow of trade information, which itself contributes to black market trade, smuggling, tax evasion, fraud and other forms of corruption.”

Director General of the Association of Iran Textile Industries, Mohammad Mehdi Raeiszadeh believes that “making tariffs logical” and reducing taxes will help check smuggling.     

“Merchants who want to import have to pay a 9% value-added tax on top of all the other costs. This is why in most cases the price of imported goods simply cannot compete with contraband. The government needs to increase the risks involved in smuggling so that the costs outweigh the benefits.”

  By Compulsion

Raeiszadeh says that individual choice and taste has a big role to play in the apparel market.

The main customers of clothes are the youth who care about color and fashion – a key factor not properly met by domestic producers.

“Another reason that Iranians don’t show much interest in buying locally made clothes is the relatively high prices. People’s purchasing power has tanked in recent years and they prefer to buy contraband that is normally available at lower and affordable prices.”

He says renowned brands around the world abide by certain standards, and special materials such as organic cotton is used in their fabrics. “We have limitations in providing our raw material which is mostly viscose cotton. This also affects the quality of our products.”  

According to Raeiszadeh, more than 90% of the foreign brands sold in Iran are fake and only 25 to 30 brands have sales permits from the main companies and/or their representatives.

  Joint Production, Exports

“A new regulation has been passed by the Ministry of Industries, Mining and Trade, that requires foreign brands of apparel wanting to operate in Iran to enter joint production with Iranian producers and later also export the jointly-produced goods.”

Raeiszadeh added that there are 10 to 15 producers in Iran with established brands who are competent enough to partner with foreign companies provided they get enough credit form banks.

“Given the population of close to 80 million, the Iranian market is lucrative and many prominent companies, European brands in particular, are eager to enter joint ventures with their Iranian counterparts,” he said without naming specific companies or the brands.