Pakistan's cotton sector faces a triple threat: allegations that fabric imported from China under a government scheme is being diverted to the open market after deliberate undervaluation, while heavy rains damage the standing crop and rising costs squeeze producers. Industry leaders are now demanding a strict audit of all imports made under the Export Facilitation Scheme (EFS) to prevent further harm to the domestic textile and cotton sectors. Main Developments Cotton Ginners Forum Chairman Ihsanul Haq warned on Sunday that under-invoiced fabric imports from China are now flooding the open market, following similar concerns about cotton yarn imports under the same EFS mechanism. He urged the federal government to carry out a strict audit of all EFS imports to prevent further damage to the domestic textile and cotton sectors. Read also: India's Engineering Exports Surge 21% in June on China Demand The All Pakistan Textile Mills Association (Aptma) had earlier provided the Federal Board of Revenue (FBR) with data regarding millions of kilograms of yarn allegedly imported through under-invoicing under the scheme. Haq claimed that Pakistani textile mills have signed substantial import agreements for cotton from the United States and Brazil this season due to quality concerns with domestic cotton. Cotton trading remained subdued over the past week as persistent rains hit major cotton-growing regions. Prices declined by Rs300 to Rs500 per maund, with Punjab rates falling to around Rs18,700 per maund and Sindh prices dropping to between Rs18,000 and Rs18,200 per maund. The official spot rate fluctuated in line with changing market conditions. Background The domestic cotton industry has been in decline for several years, according to Haq, due to shrinking production and quality, high taxes, record electricity and gas tariffs, and costly bank borrowing. Export-oriented textile mills have become increasingly dependent on imported cotton as a result. Haq also expressed concern at the expansion of sugarcane cultivation in traditional cotton-growing areas, saying it has contributed to environmental conditions that adversely affect cotton quality. He warned that the continuation of high sales tax on the ginning industry could encourage undocumented cotton trading this season, potentially leaving several hundred thousand bales outside the documented economy. This would lower officially recorded national production and damage Pakistan's credibility in international cotton markets. Why It Matters The alleged under-invoicing of fabric imports under EFS undermines the domestic textile industry's competitiveness, as cheaper, undervalued Chinese products flood the market. This comes at a time when the sector is already struggling with soaring energy costs, heavy taxation, and expensive bank financing. If undocumented cotton trading increases, Pakistan's official production figures will lose credibility, potentially affecting trade relationships with major buyers. Meanwhile, persistent rains and looming floods threaten to inflict fresh damage on the standing cotton crop, which could further reduce an already declining harvest. The combination of import diversion, weather risks, and high input costs creates a precarious situation for the country's cotton and textile sectors, which are vital to Pakistan's export economy. What's Next Haq has called on the government to substantially reduce the sales tax burden on the ginning sector to discourage undocumented transactions and support the formal economy. He also demanded a strict audit of all imports made under the EFS, including cotton, to prevent further damage. Market sources indicate that deliveries of around 25,000 bales sold earlier at lower prices are still pending, suggesting that supply-related pressures may continue to influence trading in the coming weeks. The FBR has not yet publicly responded to the allegations or the audit demand.