This was stated in a recent letter by textile and clothing producers’ unions addressed to Interior Minister Ahmad Vahidi and published by the news portal of Tehran Chamber of Commerce, Industries, Mines and Agriculture. A translation of their letter follows:
Given the $2 billion share of smuggling in Iran’s $8 billion clothing market 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.
The private sector is urging the government to combat smuggling. But if the government is unwilling to do so, it should be honest and not make promises or paint a rosy picture by providing misleading statistics about the drive against smuggling.
Iran’s textile and clothing supply chain, with more than 7,900 industrial units and 140,000 trade unions and employment of one million people alone 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.
When the plan to fight smuggled clothing brands at the supply level based on Article 13 of the Law on Combating Commodity and Currency Smuggling was launched in the fiscal 2018-19, manufacturers and economic players felt relieved. The Interior Ministry’s communiqué of Jan. 19, 2019, created coordination among organizations involved in the fight against smuggling (the central headquarter, provincial commissions, police, the Ministry of Industries, Mining and Trade, etc.); even the short implementation period of the plan (less than six months) led to a significant decrease in the supply of smuggled clothing, a significant increase in the supply of Iranian brands and more than 30% growth in production and employment.
Regrettably, pausing the implementation of this multi-phased plan with lame excuses by those in charge and directing all efforts to only confront the supply side creates a safe haven for the entry of smuggled goods.
Official statistics say smuggling has reduced to $1 billion from $3 billion in the year ending March 2019. However, according to estimates by the private sector, the best-case scenario is that smuggling decreased by less than $1 billion from March to September 2019.
Officials with the Headquarters to Combat Smuggling of Commodity and Foreign Currency say the rate of return of clothing smuggling to the supply level after interruptions in the implementation of plan at various times has been more than 70%.
Recommendations
Textile and clothing producers make the following recommendations:
First, the provisions of the Law on Combating Smuggling of Commodity and Foreign Currency 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, implementation of Paragraph 4 of Article 18 of the law and the launch of mechanized sales.
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 clothing sector.
Second, mechanized sales 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 at present VAT is levied up to the production stage, while the following stages, including the wholesalers and retailers are not subject to this tax.
The whole thing results in the lack of transparency through the chain and losses inflicted on producers.
Third, the speedy implementation of Paragraph 4 of Article 18 of the Law on Combating Smuggling of Commodity and Foreign Currency in the clothing group is urgent. In its absence, 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 lacking a product ID amount to contraband only at the supply level.
Also, following the successful implementation of the plan in dealing with smuggled clothes of 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 the import of 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, according to specific guidelines of the headquarters in this regard. Failure to do so will result in their quick reemergence in the market and offset previous measures.
Sixth, step-by-step implementation of this plan to establish 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 focused on this issue as well as on introducing fundamental reforms regarding the law on direct tax and value added tax.
The private sector is calling for accurate planning and perseverance in the fight against smuggling.