Proposed IFC Investment in Indorama Kokand 

Uzbekistan 

December 17, 2015 

The United States believes the World Bank Group can play an important role in helping the 

Government of Uzbekistan implement its commitments to modernize the country’s agricultural 

sector and eradicate the use of child and forced labor. Further, the United States recognizes that 

there has been real recent progress on these issues, particularly with respect to child labor. 

However, the United States has serious concerns with the timing and the substance of IFC’s 

proposed investment in Indorama Kokand Textile, LLC, (the company) and cannot support this 

operation. 

First, the timing of IFC’s proposed investment is such that the Board is being asked to assess the 

operation without the benefit of the information and analysis that will come with Uzbekistan’s 

new Country Partnership Framework (CPF), which the United States believes is critical to 

making a properly informed decision. The ILO’s recent assessment points to significant risks of 

ongoing involuntary labor practices linked with the Government of Uzbekistan’s quota system 

for cotton production.

It is our expectation that the CPF will be the opportunity for the Board to discuss how the World 

Bank Group plans to address these ongoing risks, including through sector policy reforms, and 

develop the information needed to ensure that child and forced labor is not being used by the 

beneficiaries of World Bank projects. 

In this context, IFC’s proposed investment could have the unintended effect of contributing to, 

rather than helping to eliminate, the quota-driven system of cotton production, which is the 

ultimate driver of illegal labor practices in the country. Absent a larger effort to reform the 

sector, informed by a robust analysis of the political economy dynamics underpinning the current 

system of production, the near-term consequences of its elimination, and a credible time-bound 

path for transition, we are unable to fully assess the merit of this individual transaction given a 

lack clarity regarding how this proposed investment aligns with the forthcoming CPF. 

Second, the United States has serious concerns about the adequacy of IFC’s proposed risk 

mitigation measures, which are premised on both the ILO’s and the company’s ability to trace 

cotton production to the farm level. While the United States fully supports the ILO’s efforts, the 

ILO has neither the mandate nor the capacity to perform detailed, farm-level monitoring to 

support IFC’s proposed mitigation measures. It is worth noting, for example, that the ILO’s 

recent report did not disaggregate risk factors by geographical area. Since the Government of 

Uzbekistan is not permitting independent monitoring of the cotton supply chain, the United 

States does not see how the proposed mitigation measures can be monitored. 

Coupled with a still to-be-determined sector reform program and the company’s inability to 

identify the exact point of origin of the cotton that it purchases, the United States is not confident 

that the company has the ability to effectively implement its commitment to “refrain from 

purchasing cotton originating from areas where child or forced labor may be present.” As such, 

the United States believes, at a minimum, that it is entirely premature to credibly expect the 
project to generate the envisaged private-sector signal for sustainable cotton production in 

Uzbekistan. 

In response to what the United States views as major weaknesses in the mitigation measures 

outlined in the proposed investment, if the proposed investment were to go forward, the United 

States expects the IFC to provide the Board, by no later than the time of consideration of the 

upcoming consideration of the country partnership framework,: 

i) a detailed plan of how the company will fulfill its commitment to ensure 

traceability of its cotton supply; including plans on how it would work with 

suppliers to address forced labor and assist victims if forced labor is found within 

its supply chain; 

ii) a detailed plan of how the company will gather data on forced labor at the farm 

level; 

iii) an update regarding whether the company would be willing to undertake an 

independent, third-party audit within one year to evaluate its compliance with, 

and the efficacy of, its environmental and social action plan; and 

iv) more information on how the company will “support sustainability initiatives” in 

the cotton sector, as outlined in IFC’s investment proposal. 

Looking ahead, the United States also urges the World Bank Group to engage the Government of 

Uzbekistan, the ILO, and independent civil society in a sustained dialogue to strengthen 

monitoring mechanisms for 2016 harvest. For example, this includes the development of a truly 

credible, independently-verifiable feedback mechanism, a central element of the World Bank’s 

action plan in response to an Inspection Panel case involving a World Bank project in 

Uzbekistan’s agricultural sector. In addition, the United States expects the World Bank to clarify 

to the Board how information gleaned from the ILO monitoring will be regularly used to monitor 

and supervise World Bank projects, several of which contain loan covenants expressly 

prohibiting the use of forced labor in project-affected areas. 

At the end of the day, the United States fully supports the World Bank Group’s goal of ensuring 

the sustainability of Uzbekistan’s cotton sector – and the liberalization of its agricultural sector. 

To achieve this goal, however, will require a robust strategy of engagement, a careful sequencing 

of operations, and clear metrics for success that encourage the Government of Uzbekistan to 

follow through on its commitments, rather than perpetuating the status quo. Unfortunately, the 

United States does not believe that IFC’s proposed transaction meets these criteria and urges the 

World Bank Group to work to address the shortcomings of this project and the lack of 

independent monitoring and feedback on the prohibitions against child and forced labor.