ISLAMABAD: In a move to avoid export restrictions, the commerce ministry has decided to implement a Track and Trace System (TTS) at ginning factories across the country to document the origin of cotton and ensure compliance with United States legislation aimed at preventing forced labour and human rights violations.

The decision was reached during a meeting between Caretaker Commerce Minister Gohar Ijaz and Chairman Federal Board of Revenue (FBR) Zubair Tiwana at the commerce ministry. The FBR has already introduced a track and trace system for various products to minimise tax evasion and improve documentation in key sectors.

An official announcement said that FBR in collaboration with federal ministries and provincial departments will introduce a TTS at ginning factories to promote transparent cotton trade.

This initiative aims to assist the textiles and apparel industry in meeting the traceability standards set by various trading blocs, nations, brands, and retailers, the announcement further said.

Decision taken to comply with new US laws to ensure human, labour rights and transparency in cotton trade

In December 2022, the US government passed legislation aimed at addressing allegations of forced labour and human rights abuses in China’s Xinjiang Uyghur Auto­nomous Region. The new law imposes obligations on companies and countries to avoid sourcing cotton from the region.

An official source in the commerce ministry told Dawn that Pakistan has repeatedly received requests from the US to introduce traceable standards. The US has already established a proper code system that helps in tracing the details of cotton.

The FBR has been requested to establish a similar system on the same line, the source further said.

According to an official, European countries have begun to demand the implementation of a traceable system for cotton produced in Pakistan. The issue extends beyond simply documenting the origin of the cotton, but also ensuring that no hazardous or harmful chemicals are used in its production.

The move reflects growing concerns about the environmental and health impacts of cotton production, and the need for greater transparency and accountability in the industry, the official said.

Another official in the textile industry said that Pakistan cannot afford any restriction either from the US or EU or proposed inspection for tracing the origin of raw materials used in the textile products. Pakistan’s maximum textile and clothing products are exported to the US and European countries.

In the last 14 months, the US has banned the import of $150 million worth of textiles from Vietnam and China on the plea of using cotton from the Xinjiang region.

According to the official, Pakistan’s maximum cotton growing areas are in south Punjab and upper Sindh. “We have no other option but to document the sector”, the official said.

To prevent revenue leakages, under-reporting of production and sales, and to ensure proper payment of FED and sales tax on the manufacture and sale of specified goods/ products, the FBR has implemented TTS for specified goods/ products i.e. cigarettes and sugar imported into or manufactured in Pakistan.

The official said that the introduction of TTS at ginning factories will help document the true potential of the whole value chain of the textile sector. There is a serious issue of tax evasion in the textile sector in local sales and the move will help in tax evasion as well, the official further said.

Published in Dawn, August 25th, 2023