Businesses across the international secondary materials and textile recycling sectors are expressing growing concern over ongoing restrictions and regulatory uncertainty affecting used textile and textile recycling operations within Pakistan’s Export Processing Zones (EPZs), particularly in Karachi.
Pakistan has long played an important role in the global circular textiles economy and is a global leader in the Used Textile & Clothing (UTC) sector. This climate-aligned sector (99% of the product is reused/recycled) generates excitement globally and shows vast potential for growth. Charities across the Western world collect used clothing and sell them in order to generate funds. They have a vast network of retail stores and warehouses and employ 100,000s of individuals. The goods they collect are eventually sold to countries like Pakistan which then sort through the items and find a new home for them across the developing world. Extending the life of these articles has a sizable impact not only on millions of jobs and the global economy, but perhaps more importantly, the environment.
Operators based within the Karachi Export Processing Zone import, sort, grade, recycle and re-export used clothing and textile materials to markets throughout Africa, Asia and beyond. The sector supports significant investment, employment and value recovery from textiles that might otherwise be discarded and end up in landfill.
But the important role that Pakistan’s EPZs play is now under threat. Industry representatives warn that restrictions on used clothing and textile recycling activities within EPZs risk undermining legitimate recycling businesses that have operated for many years within the framework of Pakistan’s export-oriented economy.
Benefits of the Export Processing Zones
The companies within the EPZ export $1 billion per annum and fund their own imports. They do not burden the State Bank of Pakistan and generate an additional PKR 5.6 billion annually in taxation for the Government of Pakistan (GOP) through corporate taxes. The EPZ also collects an additional PKR 1.4 billion in service fees. Equally importantly, the EPZ employs more than 50,000 workers affecting 250,000 individuals. Of these more than 50% of those employed are women.
Threat to the 80/20 rule
Currently, the industry operates under an 80/20 EPZ framework, under which companies export at least 80% of their production while being permitted to sell up to 20% by value into Pakistan’s local tariff area, subject to payment of all applicable duties, taxes and regulatory charges. This is not a fiscal concession, tax exemption or subsidy. It is a regulated, duty-paying market-access mechanism that is commercially essential to textile reuse and recycling, because not every recovered, graded, residual or off-grade item is suitable for export markets. A Ministry of Industries and Production communication dated 17 June 2026 states that, in the context of Pakistan’s commitments under its IMF-supported programme, amendments have been drafted to prohibit sales from EPZs into the domestic market, with implementation contemplated following Cabinet approval by September 2026. Removing this limited domestic outlet would make many established recycling operations commercially unviable, threaten investment, employment, exports and foreign-exchange earnings, and place Pakistan’s role in the global circular-textiles supply chain at serious risk.
The impact would extend far beyond Pakistan. More than 1.1 billion pounds of used clothing from the United States and Canada—approximately 500,000 metric tonnes annually—are estimated to be exported to Pakistan for sorting, reuse and recycling. Much of this material originates through charitable and community collection systems, including organisations such as Goodwill and The Salvation Army, which depend on downstream resale and recovery markets to generate revenue for employment, training, rehabilitation and other social programmes. If Pakistan’s EPZ recycling sector becomes unviable, these organisations and other collectors could face sharply higher costs for sorting, warehousing, transporting, recycling or disposing of clothing that cannot be sold through domestic thrift stores. Without sufficient replacement reuse and recycling capacity, more material could be stockpiled, landfilled or incinerated—shifting a privately financed circular-economy system into a larger waste-management burden for charities, municipalities and taxpayers, while increasing the carbon footprint of the global textile supply chain.
SMART call on EPZA and GOP to constructively engage with industry
SMART — the Secondary Materials and Recycled Textiles Association — is working with affected members in Pakistan regarding the proposed removal of the longstanding 80/20 EPZ framework and its implications for international textile reuse, recycling, employment and global circular-textile supply chains.
· “The global textile recycling industry depends on transparent, predictable and evidence-based policy,” said Steven Bethell – Board Member at SMART “Pakistan’s proposed changes risk removing a long-established, duty-paying operating mechanism on which legitimate recycling businesses have invested and built their operations. Any reform process should provide meaningful protection and a workable transition for existing investors.”
· “Used textiles are valuable secondary raw materials that create employment, extend product lifecycles and keep clothing out of landfill,” said Steven Bethell – Board Member at SMART. “For reuse and recycling to work at scale, there must be viable outlets for every grade of recovered material. Removing this limited domestic channel risks shutting down recycling capacity and shifting substantial volumes of textiles into lower-value or disposal channels.”
· Pakistan’s EPZ framework was established to facilitate export-oriented manufacturing and processing. Textile recycling businesses operating within these Zones contribute to export earnings, foreign-exchange generation, employment, resource efficiency and international trade in secondary materials.
· Industry stakeholders are calling on the Government of Pakistan, EPZA and relevant policymakers to engage constructively with the textile recycling and secondary materials sectors to develop a practical solution that preserves the commercial viability of established operations, protects existing investment and employment, and fully considers the export, charitable, environmental and waste-management consequences before any prohibition on EPZ domestic sales is implemented.
· At a time when governments worldwide are seeking to expand textile circularity, reduce waste and lower emissions, Pakistan—one of the world’s major textile and garment-producing countries—has an important role to play in building a more sustainable global textiles economy. Its policies should support responsible reuse, recycling and value recovery, including viable markets for recovered textiles, rather than remove the practical mechanisms that allow circular systems to operate at scale.
· The secondary materials sector remains committed to working collaboratively with regulators and policymakers to ensure that environmental objectives, trade facilitation, investment certainty and circular-economy outcomes are aligned.
At a time when governments worldwide are seeking to expand textile circularity and reduce waste, the industry believes that policies should encourage responsible reuse and recycling rather than create barriers to the movement of valuable secondary materials. The opportunities for this sector remain significant:
· The Global Market size is expected to reach $367 billion by 2029
· Sales on online platforms are expected to reach $40 billion by 2029
· Rework (higher value addition) market size is $20 billion annually
The secondary materials sector remains committed to working collaboratively with regulators and policymakers to ensure that environmental objectives, trade facilitation and compliance requirements are aligned.
