170,000 people have been laid off! Turkey crazy tax increase forced textile and garment industry upgrade!

Turkey exported $10.4 billion of textiles and $21.2 billion of clothing last year, making it the fifth and sixth largest exporter in the world, respectively. It is also the second largest supplier of textiles and the third largest supplier of clothing adjacent to the EU, according to Euratex.

But last week Ankara, Turkey’s capital, announced a sharp 30-100% increase in tariffs on hundreds of imported textiles, in an effort to force Turkey’s textile and garment industry to upgrade. But Turkish apparel makers also risk higher manufacturing costs and falling further behind Asian rivals.

Apparel officials say the new tax is squeezing the sector, which is one of Turkey’s biggest employers and supplies heavyweight European brands such as H&M, Mango, Adidas, Puma and Inditex. They warn that Turkey’s textile industry faces a range of risks from lower orders and job losses due to higher costs, as import costs rise and Turkish producers lose market share to rivals such as Bangladesh and Vietnam.

But most companies in Turkey ignore the warnings of these well-known brands, because they know that the turbulent Bangladesh and Vietnam in Southeast Asia have no chance to become competitors in the textile industry of Turkey. Because they are very far from the EU market compared to Turkey, Turkey only has to keep the markup between the freight rates from Southeast Asia to the EU.

Turkish exporters say that while fashion brands can withstand price increases of up to 20 per cent, any price increase will result in market losses. But one maker of women’s clothing for the European and American markets said he did not expect to lose customers because the new tariffs would increase the cost of a $10 T-shirt by more than 50 cents. Still, he said the policy changes reinforced the need for Turkey’s garment industry to shift from mass production to value-added. If Turkish suppliers insist on competing with Bangladesh or Vietnam for the $3 T-shirt market, they are bound to lose. Therefore, in the future, the Turkish textile and apparel industry will do the business of t-shirts over $10, and the $3 t-shirts will be handed over to other competitors.

The lira has lost 35% of its value this year and 80% in five years. But exporters say the lira should also fall further to better reflect the fact that inflation in Turkey is more than 61 per cent and reached 85 per cent last year.

Fayat, industry officer, TOBB, said the Turkish textile and apparel sector has shed 170,000 jobs so far this year. It is expected to hit 200,000 by the end of the year as monetary tightening cools an overheating economy.