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Viewing cable 06ANKARA5734, TURKEY'S TEXTILE INDUSTRY SMARTING FROM INCREASED

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Reference ID Created Released Classification Origin
06ANKARA5734 2006-10-02 14:27 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Ankara
null
Dianne Wampler  10/03/2006 12:35:33 PM  From  DB/Inbox:  Dianne Wampler

Cable 
Text:                                                                      
                                                                           
      
UNCLAS    SENSITIVE     ANKARA 05734

SIPDIS
CX:
    ACTION: ECON
    INFO:   CONS PA RAO FAS MGT PMA FCS POL DCM AMB

DISSEMINATION: ECON /1
CHARGE: PROG

APPROVED: ECON:TGOLDBERGER
DRAFTED: ECON:RKIMBRELL, HLIN
CLEARED: ECON:ASNOW,ASARGIN; ISTANBUL:SO

VZCZCAYI725
PP RUEHC RUCPDOC RUEHIT RUEHDA RUEHGV RUCNMEM
RUEATRS
DE RUEHAK #5734/01 2751427
ZNR UUUUU ZZH
P 021427Z OCT 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 9138
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL 1395
RUEHDA/AMCONSUL ADANA 1175
RUEHGV/USMISSION GENEVA 1495
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 03 ANKARA 005734 
 
SIPDIS 
 
DEPT FOR EB/TPP/ABT - THOMAS LERSTEN 
COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA 
DEPT PASS USTR FOR LERRION, AHEYLIGER 
TREASURY FOR INTERNATIONAL AFFAIRS 
 
SENSITIVE 
 
E.O.12958: N/A 
TAGS: ETRD EIND KTEX ECON TU
SUBJECT: TURKEY'S TEXTILE INDUSTRY SMARTING FROM INCREASED 
         COMPETITION 
 
REF: STATE 138090 
 
This is a joint message with Congen Istanbul.  Sensitive but 
Unclassified.  Please protect accordingly. 
 
SIPDIS 
 
1. (SBU) Summary:  While overall Turkish exports of textiles and 
apparel continue to increase slightly (3 percent to date in 2006 and 
7.25 percent in 2005), government and industry officials present a 
bleak picture of the sectors' future.  Most notably, Turkish exports 
to the U.S. fell by 23 percent in the first half of 2006, and many 
industry representatives fear that without some sort of preferential 
trade agreement or the often-mentioned Qualified Industrial Zone 
(QIZ), Turkey will continue to lose share in the U.S. market to 
lower-cost competitors in China and India.  In fact, many Turkish 
manufacturers have reportedly moved production of lower-value-added 
items to QIZs in Jordan and Egypt.  The textile and apparel sectors 
in Turkey comprise close to 4 percent of total GDP and 20 percent of 
its manufacturing output and employee an estimated 2 million people 
countrywide.  Turkey's safeguard measures and those of the U.S. and 
the EU have done little to buffer its industry from Chinese 
competition, and the GOT has few plans in place for future steps to 
counter the increasing competitive pressure.  While few have a clear 
vision of how, both industry and government officials agree that 
Turkey's textile and apparel future must be in the high-quality 
high-fashion market.  End Summary. 
 
2. (SBU) While trying to maintain guarded optimism, GOT and industry 
officials painted a bleak picture of Turkey's beleaguered textile 
industry.  As the first country to implement safeguard measures 
against China in 2005 following the end of the Multi-fiber 
Agreement, the number of products for which the government has 
brought such measures rose to 44 in 2006.  While official State 
Planning Organization (SPO) figures show that Turkey's textile and 
apparel sectors employed approximately 710,459 in 2004 and 638,417 
in the first six months of 2005, government and industry officials 
estimate over 1 million employees are unregistered, bringing the 
total employment in these sectors to just under 2 million, 
approximately 21 percent of total registered and unregistered 
industrial employment.  The sectors account for 4 percent of total 
GDP and 20 percent of total manufacturing output.  Currently, there 
are 43,000 registered companies operating in the sectors, and their 
total production in 2005 was approximately 27.5 billion USD. 
 
International Competition Forcing 
Some to Leave the Market 
---------------------------------- 
 
3. (SBU) According to industry figures, Turkish exports of textile 
and apparel increased 7.25 percent between 2004 and 2005, and 
exports are up 3 percent thus far in 2006.  Despite this growth, 
industry officials argued that there are reasons for concern.  An 
estimated 1044 textile and garment businesses that exported in 2004 
(with a volume of 100,000 USD or more) dropped out of the export 
market in 2005, resulting in export losses worth nearly 700 million 
USD.  In addition, about 1500 companies (with a volume of 100,000 
USD or more) have reduced their export volume by 50 percent or more, 
resulting in export losses of roughly 1.3 billion USD.  Furthermore, 
industry officials argue that most of these losses were in companies 
focused on the U.S. market. 
 
4. (SBU) Due in part to increased competition and in part to the 
appreciation of the lira against the dollar, textile and apparel 
exports to the U.S. dropped almost 23 percent in the first half of 
2006, on top of a 16 percent decrease in 2005.  The Turkish Clothing 
Manufacturers Association (TGSD) sees this as a direct result of 
competition from Chinese manufacturers and estimates that 150,000 
garment workers lost their jobs in 2005 due to competition from the 
Far East.  Also as a result of this competition, the Istanbul 
Ready-Made Garment Exporters Association (ITKIB) states that many of 
its members have moved their production of lower-value-added items 
to factories located in Qualified Industrial Zones (QIZs) in Jordan 
(20-25 companies) and Egypt (over 100 companies). 
 
Turkey's Prices Affected By Global Decrease in 2005 
--------------------------------------------- ------ 
 
5. (SBU) Foreign Trade Undersecretariat (FTU) officials told us that 
due to the flood of lower-priced Chinese products into the domestic 
market in 2005, Turkish producers have lost their ability to 
competitively price their low-value items.  They cited examples of 
women's cotton trousers and shorts, for which Chinese unit prices 
decreased from 10.90 USD per item in 2004 to 4.89 USD in 2005, and 
women's cotton knit t-shirts, which decreased from 6.24 USD per item 
in 2004 to 2.64 USD in 2005.  In comparison, Turkish products have 
increased in price due to their increased cost of production. 
Turkey's price for women's cotton trousers increased from 5.46 USD 
per item in 2004 to 6.79 USD in 2005, and their unit price for 
women's cotton knit t-shirts has risen from 3.52 USD in 2004 to 3.59 
in 2005. 
 
Safeguards Keeping Turkish Products 
in the EU Market...For Now 
------------------------------------ 
 
6. (SBU) While exports to the U.S. continue to decline, industry and 
government officials told us that exports to the EU remain strong, 
with a 3.8 percent increase thus far in 2006.  This growth is due in 
large part to European Customs Union (ECU) protectionist trade 
measures that have enabled Turkey to retain its market share in 
Europe despite Chinese competition. 
 
7. (SBU) FTU officials are concerned, however, that Turkish exports 
to the EU may begin to decline as Chinese and Indian exports 
increase in that market.  In 2005, Chinese exports to the EU 
increased by 41.5 percent, and they increased another 13 percent in 
the first quarter of 2006.  Indian exports saw similar improvement, 
increasing by 18 percent in 2005 and 28 percent in the first quarter 
of 2006.  FTU officials argued that in order for the safeguards to 
truly benefit Turkey, the U.S. and EU need to expand the number of 
safeguard categories they have invoked.  They also stated that 
because the EU waited until June 2005 and the U.S. until November 
2005 to initiate these safeguards, they had limited benefits for 
Turkish exporters.  Even with their own safeguards, however, Turkish 
Central Bank figures show that Chinese exports to Turkey quadrupled 
between 2002 and 2005. 
 
No Decrease in Minimum Wage, But Decrease in VAT 
--------------------------------------------- --- 
 
8. (SBU) Textile workers in Turkey are unionized, while garment 
workers are not.  According to TGSD representative Mustafa Mente, 
however, U.S. and European brands often impose "codes of conduct" 
requirements that improve working conditions.  As a result, 
non-union workers in garment factories with codes of conduct often 
have better working conditions than unionized textile workers. 
While the employment index in the textile and apparel industry has 
decreased between 2004 and 2005 (for textiles, it decreased from 
76.4 to 70.1, with 1997 equaling 100; for apparel, it decreased from 
80.4 to 77.6 for the same period), Turkey's minimum wage laws have 
prevented a decrease in wages for these sectors, which increased 
from 2.9 YTL/hour in 2005 to 3.3 YTL/hour in 2006. 
 
9. (SBU) While wages have not decreased, the GOT made a 
controversial decision in March of 2006 to decrease the value-added 
tax charged for textile and apparel purchases in Turkey from the 
universal 18 percent rate to 8 percent.  This decision elicited 
criticism from the IMF, which saw it as a divergence from Turkey's 
program commitments, and demands from other troubled sectors, 
including tourism, for similar relief.  According to FTU officials, 
the change actually brought very limited assistance to the 
beleaguered textile market, in part because, according to the WTO's 
national treatment requirements, the tax rate must be applied to all 
textiles and apparel, including imports from China and other 
competing countries. 
 
Plans (or lack thereof) for the Future 
-------------------------------------- 
 
10. (SBU) Industry and government officials continue to hope for a 
preferential trade agreement or textile-inclusive QIZ with the U.S. 
to lower or eliminate the 16 percent average import tariff.  Absent 
such agreements, they argued, prospects for increased exports to the 
U.S. are dim.  Emrah Onguc, Turkish State Planning Organization 
(SPO) expert on textiles, told us that the SPO, whose job it is to 
develop long-term plans for Turkey's economy, views a QIZ with the 
U.S. as the only way to increase exports.  This candid statement 
revealed the GOT's lack of creative ideas for the future of the 
textile and apparel industry. 
 
11. (SBU) ITKIB Chairman Suleyman Orakcioglu sees the future of the 
Turkish garment industry focusing on "marketing, innovation, and 
design."  For example, manufacturers are working closely with French 
and Italian labels to produce high-end sportswear and men's suits in 
Turkey.  At the same time, manufacturers are moving their 
lower-value-added production to factories outside of Turkey, 
allowing them to focus on higher-value-added goods and niche 
markets, such as Turkish towels and bathrobes.  The EU is also 
providing assistance (13 million Euro or 75 percent of the total 
funding) for a Turkish Fashion Institute slated to open by year-end 
2006.  The Fashion Institute will offer short-and long-term 
educational programs focused on marketing and design in cooperation 
with Saint Martin's College in London. 
 
12. (SBU) Turkey's State Minister for Foreign Trade, Kursad Tuzmen, 
announced that in 2006, FTU would begin a trade promotion campaign, 
the "Year of America," focusing on expanding Turkey's exports to the 
U.S. by focusing on five key states: New York, Illinois, Florida, 
Georgia, Texas and California.  While Turkey's industrial support 
and incentive mechanisms are limited by their EU and WTO 
commitments, they provide non-sector specific financial assistance 
for research and development, fair and exhibition participation, and 
market research support.  According to Ziya Altunyaldiz, Deputy 
Director General for Exports at FTU, Turkey's leather producers are 
working in conjunction with FTU officials to promote Turkish leather 
goods in the U.S. market.  Government and industry officials agreed 
that Turkish textile and apparel's future, especially after 2007, is 
in the high-end markets because producers will not be able to 
compete with low-cost manufacturers of inexpensive mass-produced 
items in such countries as China and India. 
 
Statistics 
---------- 
 
-- Total industrial production USD:  176.8 billion 
 
-- Total textiles and apparel production in USD:  27.5 billion 
 
-- Textile/apparel share of Turkey's imports:  (2005) 5.75 percent; 
(2006 Jan-July) 5.34 percent 
 
-- Textile/apparel share of Turkey's exports:  (2005) 25.7 percent; 
(2006 Jan-July) 23.63 percent 
 
-- Textile/apparel exports to U.S. in 2006 in USD (year on end): 
For the period ending August 2006, 824 million, down 20.2 percent 
from the same period in 2005. 
 
-- Total registered manufacturing employment:  4.3 million 
(Note:  Official sectoral employment figures are grossly understated 
due to Turkey's large unregistered economy, which many estimate at 
close to 50 percent of GDP. End note.) 
 
-- Total registered textiles employment (2005): 312,522 registered 
employees 
 
-- Total registered apparel employment (2005): 325,895 registered 
employees 
 
MCELDOWNEY