Rising costs could lead to store closures

With the decision published in the Official Gazette, customs duties on more than a thousand products across 8 different chapters in yarn, fabric, and knitted apparel have been increased by approximately 10 percentage points. While representatives of the textile sector evaluated the decision positively, the ready-to-wear side stated that the decision would negatively affect domestic brands.

The decline in capacity utilization rates and the loss of employment, which began to increase in the second half of last year due to import figures in textiles and ready-to-wear—among the most critical sectors for Turkey's exports and employment—have prompted the economic administration to take action. With the decision published in the Official Gazette, additional customs duties on 169 products in cotton, cotton yarn, and cotton fabrics in 52 chapters in the textile sector have been increased to a range of 8 to 27 percent; customs duties on 255 products in synthetic and artificial filaments in the 54th chapter have been increased to a range of 8 to 27 percent; additional customs duties on 106 products in synthetic and artificial staple fibers in the 55th chapter have been increased to a range of 13 to 27 percent; additional customs duties on 58 products in wadding, felt, and non-woven fabrics in the 56th chapter have been increased to 27 percent; and taxes on 19 products in special non-woven fabrics in the 58th chapter have also risen to the 27 percent level. Tax rates for these products were previously in the 5-8 percent range. The decision will enter into force 30 days after its publication date. In the 5 chapters subject to additional customs duties in the textile and raw materials sector, 5.2 billion dollars of imports were realized in the January-September period of this year. This figure was 7.7 billion dollars in the same period last year. Parallel to these developments, capacity utilization rates in the textile sector fell to the 71 percent threshold, while employment loss decreased by 82 thousand, falling from 496 thousand to 414 thousand in the period from July of last year to July of this year.

INCREASED BY 9 POINTS IN READY-TO-WEAR

Additional customs duties have also been increased in the ready-to-wear sector. While the additional customs duty on knitted goods in the 60th chapter was raised to 27 percent, customs duties on 182 products in knitted apparel and accessories in the 61st chapter were increased to 39 percent; tax rates on 292 products in non-knitted apparel and accessories in the 62nd chapter were increased to 39 percent; and finally, additional customs duties on 83 products in ready-to-wear apparel made of textile materials in the 63rd chapter were increased to 39 percent. Imports in these 3 chapters, which were 2.5 billion dollars in the January-September period of this year, were 1.8 billion dollars in the same period last year. In the sector, where the capacity utilization rate has already fallen to the 75.8 percent level, employment loss exceeded 45 thousand in the period from July of last year to July of this year, falling from the 722 thousand level to the 677 thousand level.

“IT WILL LEAD TO INFLATIONARY PRESSURE”

Speaking to EKONOMİ on the subject, Şeref Fayat, President of the TOBB Ready-to-Wear and Apparel Sector Council, recalled that lobbying had been going on for a long time and that they had met with the ministry many times, stating, “Price hikes on raw materials, in particular, cause trouble for ready-to-wear. We have been fighting for this for years. The textile sector constantly asks for protection. We say that this will widen the price gap between us and our competitors and cause problems. The raw material side says, 'import with the Inward Processing Regime (DİR).' But this is not very easy in practice. Therefore, it is a troublesome process for us. In this environment where there is exchange rate pressure and we are having difficulty meeting costs, the arrival of this tax will put us in an even more difficult position in terms of competition. This will inevitably lead to inflationary pressure.” Touching on the taxes imposed on ready-to-wear imports, Fayat continued: “I think that brands will experience difficulties in competition here as well. Domestic brands, which have to fight against competitors both domestically and abroad, will be negatively affected by this. I do not find it right to trade by hiding behind too many customs walls. I think that a production structure where everyone can access raw materials under equal conditions in a free market is more correct. These are temporary measures. The permanent and necessary thing should have been to ensure that the right investments are made with the right support and incentives,” he said.

“PRICES WILL INCREASE BY AT LEAST 10% STARTING FROM DECEMBER”

Ramazan Kaya, President of the Turkish Clothing Manufacturers Association, expressed that they met the decision with a great shock and did not expect it at all, saying, “Taxes have been imposed on yarn, fabric, and ready-to-wear. First of all, forget about us in Turkey; foreign brands import their products. While these brands were paying 30 percent tax, they will now pay 39 percent tax. This means we will enter an inflationary period again. It will be directly reflected in the shelf prices of imported products. Prices will increase by at least 10 percent after December. Foreign brands will reflect their costs in their prices. In addition, there were products we could not buy from Turkey due to cost advantages. With the additional taxes, we will have lost this advantage. Our problem was already the lack of demand and the cost increases brought by the lack of demand. Because of the cost increases that will come on top of this, we will again face customers with expensive products. This was a situation we should never have encountered during this period. Capacities did not just fall in textiles and yarn. They also fell at the same rate in ready-to-wear. This problem is being experienced in both sectors. But this decision will increase costs again, and consumers will be the first to be negatively affected. Thank-you announcements were made on the raw material side. Customers are now asking us for prices, asking, 'Are you going to increase them?' It is not possible for us to increase prices all of a sudden in this period. We do not find these actions very correct in the current situation,” he said.

“IT WILL PAVE THE WAY FOR EMPLOYMENT GROWTH IN TEXTILES”

Ahmet Öksüz, President of the Istanbul Textile and Raw Materials Exporters' Association (İTHİB), included the following statements in his statement on the subject: “Updating additional customs duty rates upwards against unfair competition in imports, which causes the disruption of production habits in the domestic market and takes away our competitive advantage; and most importantly, reduces the efficiency of our investments; will undoubtedly be one of the greatest supports for our sector in this period. We also find this decision valuable in terms of preventing the decline in employment, which has been one of our biggest problems recently. We believe that the additional customs duty rates, which vary between 10 and 27 percent, will increase the motivation of our industrialists in their production and export activities. As a sector, we do not desire import taxes on product groups that are not produced in Turkey. However, the unfair competition created by the import of product groups that have a very significant production volume in Turkey deeply affects our sector. The decision issued to increase additional customs duties will cause a relative revival in our sector and will also contribute to the tax increase.”

“RISING COSTS COULD LEAD TO STORE CLOSURES”

Sinan Öncel, President of the United Brands Association, stated that the decision, which will primarily lead to an increase in costs, will automatically be reflected in prices as an increase. Öncel continued: “There is a collection in brand dynamics. To be able to create a collection, you need to differentiate. The most important condition for this is to have different raw materials and fabrics. If you cannot have different products, your differentiation remains limited. This negatively affects competitiveness. This decision is also a decision that will harm brands in terms of value-added production.” Regarding the effect of the decision on foreign brands, Öncel said, “The increase in the additional customs duty does not affect the upper segment much. However, it will cause prices in the lower segment to approach the upper segment. Another result is that the ready-to-wear manufacturer buys goods from wherever they can meet the cost. A brand that cannot reach the right and affordable raw materials in the domestic market may also go towards reducing stores. Such decisions can also lead to high rates of loss in employment,” he said.