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&M, 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 
 
 
------------------------------ 
 
¶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