Textiles, Trade and Turkey
Primary Contributor: Wincy Ho
Team Leader: Ernest Tam
18/01/2017
A significant event for the Turkish textile trade industry was the removal of all Multifibre Arrangements and all existing trade barriers in 2005 due to the World Trade Organization’s Agreement on Textiles and Clothing. This striking change in the policy of textile trades has led to an increase in competition. The removal of restrictions on China is a setback for Turkey as China has a greater labour-cost advantage. The emergence of closer trading ties between the European Union and India and South Korea, who are also major competitors in the textile industry, has also negatively affected Turkey’s textile industry. States who are able to offer the best price, the best quality and the best customer service will thrive. This trend will prevail in the coming years.
The liberalization of trade in conjunction with the 2009 economic crisis has led to the Turkey’s gradual loss of labour cost advantage in the textile industry. The Turkish government launched “Turquality” in 2004 to mitigate the issues presented by the international trading environment and also to preserve Turkey’s textile industry competitiveness. This accreditation program sought to boost exports through state-subsidized brand-building. However, Turquality goes beyond financial support and also provides professional guidance for companies that have the potential to evolve into world renowned brands that will serve Turkey’s textile industry well in the global market.
In today’s highly competitive trading arena, not only is the brand itself important but the image of the state where the product is produced is also a factor. Thus, nations are becoming a global brand in and of itself and the “made in” label is one of importance. For example, Mercedes Benz is often synonymous with a “made in Germany” label, procuring positive reactions from consumers due to the prestige of German engineering, quality and reliability. However a “made in China” label is often associated with negative characteristics such as low-quality. Overall, the Turquality program has contributed to a new brand for Turkey and has allow the Turkish textile industry to regain momentum after the economic crisis. Turkey’s textile revenue index increased by 42% from 2010 to 2012. The Tranquality trademark is viewed by foreign markets as a symbol of confidence, high end quality at a fair price.
Major Trading Partners
Turkey’s textile industry’s success can also, in part, be attributed to the country’s geographical location at the crossroads of Europe, Asia and the Middle East and Africa, creating a link between 3 continents. The location is advantageous for the country in terms of trade as Turkey serves as a regional trade hub that allows for easy accessibility to the markets of the surrounding regions.
Turkey’s proximity to the European Union (EU) provides Turkey with many rich countries as Turkey’s main trade partners. In 1995, Turkey signed the Customs Union, on the condition that Turkey incorporates the EU’s regulatory standards into its laws. Today, the EU is Turkey’s largest textile trading partner for imports and exports, accounting for 40% of Turkey’s total textile and clothing exports.
On the other hand, it is important to note, that having such a heavy dependence on the European Union can be dangerous for Turkey’s economic stability. For example, from 2008-2011, the economic crisis led to a long European debt crisis, which resulted in a decreased demand for textile imports from Turkey. During this period, Turkish textile exports to the EU fell 12%. Thus, it is important for Turkey to maintain and strengthen trading relationships with other states. Other important export markets for the Turkish textile industry, includes Iraq, Russia, USA, United Arab Emirates and Iran.
The importance of maintaining healthy trading relationships is reinforced by the recent hostility with Russia, resulting in decreased trade. Turkey’s exports to Russia declined from 2013 to 2014 by 14.6% due to the decrease in the value of the ruble. This was further exacerbated after the downing of Russian fighter jet near the Turkey-Syrian border in November 2015. Bilateral relations, including trading relations, between the two countries froze. Russia introduced economic sanctions against Turkey in reaction, including the freezing of $500 million worth of investment, cancelling bilateral visa-free travel, suspending travel tours to Turkey and halting the planned gas pipeline that would bring Russian gas to Turkey across the Black Sea.
These sanctions have an immediate and direct impact on the textile industry in Turkey. The textile industry is energy-intensive, thus it is important to reduce energy cost and use energy efficiently. However, Turkey lacks energy resources such as oil and gas, and consequently, imports 70% of their energy resources required to meet the country’s energy needs. Turkey relies on the import of energy resources to run their manufacturing companies, with the textile industry using 10% in national energy consumption. Thus, halting the planned gas pipeline from Russia is a major setback for Turkey. It results in a loss of the promised 10.25% discount in energy resources, which would have contributed to a greater cost advantage, allowing Turkey’s textile industry to be a greater competitor in the world market. Furthermore, there has also been a significant reduction of exports to Russia; Turkey’s exports to Russia decreased by 61.5% to $484.6 million in the first quarter of 2016 compared to the same period in 2015, as a direct result of the economic sanctions imposed by Russia. This directly affects the textile industry as the export of textiles was also included in the official bans.
The weakened relations with Russia have not only short term effects, but long term effects as well, as this serves as an opportunity for other states to boost their presence in Russian markets. States such as Indonesia or Bangladesh could replace Turkey as one of Russia’s major textile suppliers. This has led Turkey to seek new textile trading partners. Strategies have been developed to redirect textile exports originally intended for Russia to the African market. However, Turkey and their textile manufacturers should keep in mind that Africa, as home to the world’s most economically disadvantaged people with the lowest purchasing power, is not a strong substitute for Russia. Moreover, China has already established itself as a major exporter in the textile markets in Africa, making tough competition for Turkey. Despite, difficulties with the African market, Turkey is headed in the right direction by diversifying their export market.
Mitigation Strategies for the Future of Trading Textiles
The textiles and clothing industry will continue to play a significant role in Turkey’s economy in the foreseeable future. Turkish textiles and clothing producers are competitive in the world market and have increased their market shares over the past decade. However, as outlined, certain situations have posed financial risks to this industry. There are steps Turkey’s textile industry can take to mitigate these risks and further advance its competitive position. First, textile manufacturing companies in Turkey can specialize in environmentally friendly production and products. This specialized niche market may allow Turkey to offer consumers a choice that is not as readily available from other textile industries. Such goods may be especially appealing to companies focusing on baby and children’s clothing. Parents are showing increasing concern for their children’s health and clothing, which has direct contact with skin, allows characteristics such as “organic cotton” to be marketable and well received. Second, textile manufacturing companies can market humanitarian working conditions. The textile and clothing industry is labor-intensive, and although developing countries with low wages have a strong comparative cost advantage, they lose out on a humanitarian image. As Turkey cannot compete with the low-wages in countries such as China, they should focus on an alternative market. Similar to the “fair trade” coffee industry, textiles should pursue fair working conditions as a marketable characteristic. Deprived working conditions reflect poorly on the brand and can ruin their reputation and as a result, face the loss of existing or future consumers.
