US exporters endorse IMF 80/20 EPZ rule, warn its removal would harm global textile circular economy and charities.

The International Monetary Fund’s condition to stop the sale of 20 % of production by factories in Pakistan’s Export Processing Zones (EPZs) to the domestic market is seen by U.S. exporters as a threat to the global textile circular economy and to charities that rely on donated goods. A U.S. business association spoke to the IMF’s mission chief for Pakistan, Iva Petrova, to explain that the proposed restriction would reduce demand for recycled textiles, diminish charitable revenues and lead to more material being landfilled or incinerated. In its most recent report, the IMF said Pakistan had drafted amendments to prohibit EPZ sales to Pakistan’s tariff areas, a measure that the cabinet is expected to approve by September 2026. Both U.S. and Pakistani exporters oppose the change because they sell the goods locally after paying all applicable duties and taxes. They warn that the removal of the 20 % quota could breach the investment framework that grants permission to sell 20 % locally and export the remaining 80 %. US exporters have approached Mission Chief Petrova to express concern over the withdrawal of the quota and told their Pakistani counterparts that the IMF had not initiated the change. Pakistan is a key link in the global textile recycling chain. Textiles collected in the United States, Canada and Europe are sorted and graded in Pakistan before being routed to reuse, recycling, manufacturing and affordable consumer markets. Eliminating the rule would cut the price and demand for recovered textiles, weaken charitable collection programmes and could send tens of millions of dollars in lost revenue from organisations such as Goodwill and the Salvation Army. The United States sends used clothing that accounts for approximately 9‑10 % of all Pakistani imports from the country. Under the 1980 EPZ Act and Rule 228(5) of the Customs Rules, factories in EPZs may sell up to 20 % of production in tariff areas. EPZA has already moved a proposal to the Federal Board of Revenue to abolish the 20 % quota from 1 October, but the industries ministry says the quota removal was not part of the original IMF deal, as confirmed by a September 2024 IMF report. Under the IMF agreement, Pakistan was required to assess each SEZ and EPZ for market distortions. An AT Kearney report, completed in June last year, found no distortion and did not recommend withdrawing fiscal incentives. The Secondary Materials and Recycled Association says that dismantling the 80/20 framework would jeopardise jobs, exports, foreign‑exchange earnings and the circularity of the textile supply chain. Investors note that the 20 % of production sold locally is often the only viable market for low‑grade goods, which are typically sold at or below cost. Without the 80/20 rule, those goods would need to be shipped abroad, adding unnecessary transportation costs for each four to five containers processed in the zone. Unlike many Pakistani exporters that rely on the State Bank of Pakistan’s foreign‑exchange reserves to finance imports, EPZ businesses fund imports from their own foreign‑currency resources.