Additional customs tax on textiles puts pressure on clothing manufacturers

While Turkey is increasing additional customs duties applied to the import of textile products by up to 100 percent; In the Turkish garment industry, which is Europe’s third largest supplier, regulations that will lead to cost increases may further corner the sector.

Although the regulation will give a break to the textile industry, which is having a hard time due to import pressure and significant declines in production rates are observed; It is claimed that this practice can increase costs for Turkish ready-made clothing manufacturers, who are suppliers to leading European brands such as H&M, Zara, Mango, Adidas and Puma, and cause further market losses to their competitors such as Vietnam and Bangladesh. .

By decision of the president, customs duties on hundreds of textile products were increased by 30 to 100 percent from November 15. In this context, the customs tariff for polyester yarn, which was previously 5 percent, was increased to 10 percent, the customs tariff for cotton yarn, which was 5 to 8 percent, was increased to 10 to 13 percent, and the customs tariff for all groups of textile products, which was 20 percent, was increased to 27 percent. Customs duties were increased from 30 percent to 39 percent for all ready-made garment product groups.

Within the scope of the Active Processing Regime, imports for export may be exempt from additional taxes. However, clothing representatives point out that very few exporters can benefit from this exemption due to implementation difficulties.

TEXTILE INDUSTRY REQUESTED ADDITIONAL TAXES

The tax increases came after the textile industry’s call to increase additional customs duties on textile imports, especially yarn.

Ahmet Öksüz, President of the Istanbul Textile and Raw Materials Exporters Association (İTHİB), stated that the textile industry has become an importer after many years, which creates a deficit in foreign trade, noting that this situation represents a risk for production. Stating that capacity utilization at some facilities fell to 50 percent and significant job losses were experienced, Öksüz called for the rearrangement of additional customs duties on textile imports.

While the capacity utilization rate (CUR) in the textile industry was 70.7 percent in October, it was far below the level of 77.4 percent in the overall manufacturing industry. Textile industry representatives claim that the CUR, especially among yarn producers, has fallen to 50 percent.

IT IS LOSING ADVANTAGE AFTER THE PANDEMIC

Both textile and ready-made clothing manufacturers had made significant gains as European and American fashion brands shifted their orders from the Far East to Turkey due to the effect of rising freight prices and supply chain disruptions. during the pandemic period.

However, the sharp drop in freight prices after the pandemic and the increase in costs due to high inflation eliminated this advantage for Turkish companies. While Turkish textile and clothing manufacturers are experiencing losses in export markets; The fact that Turkish ready-made clothing manufacturers turned to import substitutes instead of Turkish textile products because they were cheaper caused the textile industry to suffer losses in the domestic market.

‘HE FORCED US TO STOP PRODUCTION’

Fatih Bilici stated that a few months ago they reduced their production at the Osmaniye yarn factory from 50 tons to 5 tons due to rising costs and pressure from imports, and said they also significantly reduced the number of employees.

Bilici stated that many companies in the sector are in the same situation as him: “My competitor in Uzbekistan sells the yarn that I produce for $3.20 for $2.70. How can I compete? “We had to stop production,” he said.

However, according to clothing representatives, the situation in their sector is not good. Ramazan Kaya, co-president of the Turkish Garment Manufacturers Association (TGSD), said: “The problem is not only in the textile sector. There is also a global lack of demand for ready-made clothing. Due to rising costs, our price difference with the Far East, which was 15 to 20 percent, increased to 40 to 50 percent in one and a half to two years. “This situation causes orders to shift to the Far East,” he said, adding:

“The fact that the exchange rate remains below inflation also affects us very negatively. “When we were experiencing severe unprofitability, we were presented with this tax increase.”

According to Kaya, exports will remain at the level of 19 to 19.5 billion dollars, despite the target of 23 billion dollars set at the beginning of the year in the garment industry.

According to TİM data, ready-made clothing exports decreased by 8.3 percent in the first 10 months of the year, reaching 16.4 billion.

Exports of ready-made garments were 21.2 billion in 2022 and exports of textiles were 10.4 billion.

Turkey is the world’s fifth largest exporter of textiles and sixth largest exporter of ready-made clothing. Turkey is the second largest supplier of textiles to the European Union and the third largest supplier of ready-made clothing.

Türkiye’S PARTICIPATION IN THE EU IS DECREASING

However, due to rising costs, Turkey, whose prices are more expensive than its competitors in the Far East and Asia, especially Bangladesh and Vietnam, is losing orders to its competitors.

According to data from the European Textiles and Clothing Confederation (EURATEX), Turkey’s share of EU imports of textiles and ready-made clothing decreased to 12.7 percent in 2022, from 13.8 percent last year. former.

President of TOBB’s clothing and ready-to-wear sector, Şeref Fayat, said: “Currently, the price difference between a T-shirt or a pair of pants produced in Bangladesh and those produced in Turkey for a buyer in Europe “It’s 40 percent. Because we follow Moda well and our fabric infrastructure is very good, international brands have a very good fabric infrastructure. “They see no harm in giving a price difference of up to 15-20%.” But a price difference of more than 20 percent seems like a market loss,” he said.

REACTION OF ‘TL VALUABLE’

Fayat said one of the main reasons Turkish exporters cannot maintain prices is that “TL is much more valuable than it should be.”

Although TL has lost 35 percent of its value against the dollar since the beginning of the year, exporters argue that raising the exchange rate below inflation reduces their competitiveness.

According to Timur Bozdemir, chairman of the board of directors of DF Manhattan Inc, an exporter of women’s clothing, what is needed in the garment industry is a change in strategy.

Bozdemir stated that the increase in the import tax on textile products would increase the cost of a $10 t-shirt between 30 and 50 cents and that he did not believe that European or American chain stores would give up purchasing because of this difference; However, he said what the Turkish garment industry needs to do is move from low-price but high-money jobs to more specialized, value-added production.

Bozdemir said: “If we insist on competing with Bangladesh or Vietnam to produce a three-dollar T-shirt, we will be the losers.” (REUTERS)