About $4.5 billion worth of textile products were smuggled into Iran in the last fiscal year (March 2021-22), according to Abbas Sarshar, a board member of Iran’s Textile Industry Union.
“The figure shows an 18.4% rise compared with $3.8 billion in the year before,” he was quoted as saying by IRIB News.
According to the official, Iran’s textile industry exports $1 billion worth of products every year.
“Machine-made carpets account for close to 90% of this volume,” he added.
About $17-18 billion worth of goods are smuggled in and out of Iran annually, the head of the Headquarters to Combat Smuggling of Goods and Foreign Currencies said recently.
“Outgoing contraband accounts for more than $5.5 billion of the total sum. The figure increased after the reimposition of economic sanctions in the fiscal 2018-19,” Ali Moayyedi Khorramabadi was also quoted as saying by Fars News Agency.
He noted that before the fiscal 2011-12, incoming contraband stood at a staggering $25 billion per year, referring to garments as the main commodity smuggled into Iran.
“Smuggled products make up around $2 billion, or 25% of Iran’s annual apparel market,” secretary of the Union of Textile and Apparel Producers and Exporters said in February.
“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.
“Presently, the lion’s share of apparel smuggled into Iran are off-season brands sold at discounted prices, which 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.
Qadiri called on respective officials to take urgent measures to combat the entry of contraband apparel in the market and lend support to domestic manufacturers.
Textile Union’s Letter to Interior Ministry
Garment manufacturers are grappling with recession due to smuggling, shortage of raw materials and a sharp decline in purchasing power and consumption due to the outbreak of Covid-19, read a letter by the Textile and Clothing Producers 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 clothing market 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,” he said.
“Iran’s textile and clothing supply chain, with more than 7,900 industrial units, 140,000 trade guilds and 1 million workers 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, border couriers and travelers.”
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 systems.
For combating smuggling, the most important issue is to create transparency along the chain. To achieve this, transparent mechanisms should be established gradually. Unfortunately, the lack of transparency has increased smuggling and informal activities in the clothing sector.
Second, mechanized sales systems must be set up as soon as possible and value added tax needs to be replaced by consumption tax. The connection between VAT chain and the final consumer is one of the most important issues in creating transparency, but unfortunately VAT is levied only up to the production stage. In the following stages, wholesalers and retailers are not subject to this tax.
The whole thing results in a lack of transparency through the chain and losses 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 that don’t have a product ID amount to contraband only at the supply level.
Following the successful implementation of the plan in dealing with smuggled clothes from well-known brands in early 2019 and the failure to implement 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 on imports of clothing, bags and shoes need to be documented 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, according to the specific guidelines of the headquarters. The failure to do so will result in their quick reemergence in the market and offset 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 and the law on direct tax and value added tax need to undergo fundamental reforms.
The private sector calls for accurate planning and perseverance in the fight against smuggling.
