VZCZCXRO0634
PP RUEHDA
DE RUEHIT #0469/01 2411354
ZNR UUUUU ZZH
P 281354Z AUG 08
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 8432
INFO RUEHAK/AMEMBASSY ANKARA PRIORITY 7901
RUEHDA/AMCONSUL ADANA PRIORITY 2375
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUEKJCS/DIA WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
UNCLAS SECTION 01 OF 02 ISTANBUL 000469
SIPDIS
DEPT FOR EEB/TPP/ABT - GARY CLEMENTS
COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA
DEPT PASS USTR FOR CAROYL MILLER, MARK MOWREY
TREASURY FOR INTERNATIONAL AFFAIRS
E.O. 12958: N/A
TAGS: ETRD EIND KTEX ECON TU
SUBJECT: TURKISH TEXTILES CHANGE COMPETITIVE FOCUS
1. Summary. A strong lira, rising production costs, and
increased competition from China continue to needle Turkey's
textile and apparel industry. Top textile sector officials
have requested an extension of subsidies from the Ministry of
the Economy to bolster the sector. In an effort to redefine
its competitive edge, some members of Turkey's textile sector
now invest in high-end production, research and development,
and design to place them in competition with Italy while
others remain focused on the shadow of China. Representatives
from Turkey's two major textiles associations offered mixed
objectives, demonstrating that the sector has yet to sync its
brand. End Summary.
A Focus on Cost Reduction
-------------------------
2. In light of the strong lira, rising production costs, and
increased competition from China the Deputy Prime Minister
for the Economy will announce an urgent action plan for the
textile sector in the coming weeks following an August 25
meeting. Top officials of the sector hope this plan will
include a two year of the subsidy/incentives law (No.5084)
beyond the 49 underdeveloped provinces for which it is
currently reserved. Under the law, the GOT covers 50 percent
of electricity costs and excuses the company from withholding
employee income tax and social security premiums if located
within an organized industrial zone (OIZ). Those companies in
subsidized provinces but not located within an OIZ pay only
60 percent of electricity costs and withhold only 20 percent
of employee income tax and social security premiums.
According to Secretary General of the Turkish Apparel
Industrialists Association Mehmet Kumbaraci, the sector has
already begun to move production facilities to specialized
zones in Anatolia that fall under the subsidy law in order to
reduce production costs, which have been rising dramatically
due to increases in energy prices and in wages. He notes
nearly half of the sector's companies - largely small and
medium sized enterprises and family companies - cut
employment costs by remaining unregistered. Even registered
companies cut costs by subcontracting unregistered workers
while the government turns a blind eye in order to maintain
support during local elections, according to Kumbaraci.
3. Given what he considers the unfair competition the
Turkish textile sector faces from China, Kumbaraci believes
the sector is justified in its attempts to cut costs.
Contending that the U.S. and Europe have a double standard
when it comes to China - closing their eyes to the poor
working conditions and child labor in order to obtain cheaper
products - he laments that "free but fair and ethical trade"
will never be a reality. Some companies do prefer to buy
socially compliant Turkish products, like Marks & Spencer and
H, which purchase only from companies with registered
workers. Turkey remains Marks & Spencer's top supplier for
this reason, he noted.
Rebranding Turkey's Competitive Edge
-------------------------------------
4. In order to compete with what Kumbaraci terms "low
quality, mass-produced products from China," the textile
sector is rebranding itself with a focus on "visionary"
high-end products. By redefining its competitive edge in the
areas of haute couture, design, and eco-friendly production,
Akif Yurtcan, Secretary General of the Istanbul Textile and
Apparel Exporters Association (ITKIB), and Emine Acilan,
Research and Development Manager at ITKIB see the potential
for Turkey to compete with countries such as Italy instead of
China. With the goal of improving product quality, ITKIB
opened the Istanbul Textile Research Center (ITAM) where
researchers experiment with nanotechnology and "green
materials." In the realm of design and haute couture, ITKIB
begins its first academic year of courses at the Istanbul
Fashion Academy (IMA) in October with excess student demand.
After two years of studies at IMA, students will be eligible
to participate in an exchange year at the London School of
Fashion. According to Yurtcan and Acilan, IMA graduates will
contribute to the industry by adding distinct Turkish
branding to the product.
Rising Oil Prices Fuel Exports
ISTANBUL 00000469 002 OF 002
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5. Despite exceptional tariffs on imported textiles and
garments in Iran, sales to Iran increased 29 percent from
2006 to 2007. Yurtcan and Acilan suspect it is a reflection
of the surge in energy revenues in Iran, andcite parallel
changes in consumption patterns from Russia and Kazakhstan
for similar reasons. They note that exports to the U.S.
decreased by 29 percent between July 2007 and July 2008.
Turkish Textiles/Garment Export Statistics (Jul 2007 - Jul
2008)
--------------------------------------------- -----------
-- 2008 Total exports of ready-made clothing: $1.42 billion
-- 2008/2007 Percentage Change: 8.4%
-- 2008 Total exports of ready-made clothing to US: $53.31
million
-- 2007/2008 Percentage Change: -29.3%
-- 2008 Total exports of textiles: $522.14 million
-- 2007/2008 Percentage Change: 16.2%
-- 2008 Total exports of textiles to U.S.: $18.52 million
-- 2006/2007 Percentage Change: 7.2%
7. Comments: The heads of Turkey's two major textile
associations presented two differing approaches that may in
fact be complementary, but that demonstrate that the sector
has yet to agree on who its principal competitor is and on
how Turkey should be branded. Kumbaraci contended that China
remained Turkey's main competitor and complained about the
Western market's increased consumption of Chinese goods,
while Yurtcan is interested in rebranding Turkey as a
high-end producer and now considers Italy to be its main
competitor. Without more effective coordination in the
sector, both initiatives may end up faltering in the face of
increasing international competition and rising costs.
OUDKIRK