THE SPEECH TEXT of MR. KÜRŞAD TÜZMEN

THE SPEECH TEXT of MR. KÜRŞAD TÜZMEN

STATE MINISTER

REPUBLIC OF TURKEY

THE FUTURE OF TEXTILE INDUSTRY IN THE EURO-MEDITERRANEAN AREA

(Prepared for Conference held in Brussels on 5-6 May 2003)

Mr. Wilkinson, Distinguished Guests,

It is a great pleasure and privilege for me to be here on the occasion of “the Conference on the Future of Textiles and Clothing After 2005”. I would like to seize this opportunity to express my deep appreciation to Commissioner Mr. Lamy for organizing such a Conference, which brings together the main actors in textile and clothing trade from all over the world.

This wide-ranging discussion platform provides us with the opportunity to examine the implications of quota elimination in textile and clothing sector in details. It also offers a forum to assess appropriate trade policies that will be needed from 2005 onwards to respond this major development.

As you all would agree, textile and clothing industry is one of the most global industries in the world. It constitutes an important source of income and employment for many countries. It accounts for 5.7% of the production value of world manufacturing output, 8.3% of the value of manufactured goods traded in the world, and more than 14% of world employment. Undoubtedly, importance of textile and clothing sector in economic development of developing countries is much more substantial.

Additionally, textiles and clothing sector takes place at the core of many issues relating to the international economic environment such as sustainable development, market openings, social policies including labor rights, environment, and regional development matters.

In fact, these issues I have just mentioned are discussed in detail in the various sessions of this Conference and all deserve detailed examination within the perspective of coming elimination of quantitative restrictions in textile and clothing sector. What I would like to discuss with you today is the future of textile industry in regional integrations, particularly in Euro-Mediterranean area.

During the last decade, we witnessed significant developments in the global textile and clothing trade.

First, the Agreement on Textiles and Clothing of 1994, which stipulated elimination of all quotas by 2005, has launched a new era where all trading countries would certainly face tough competition conditions.

Second, China has come to the stage as an important and influential player. During 1994-2001 period, Chinese exports of textiles has increased by 42,4% making China the largest exporter of textile products. When it comes to clothing exports, China has been running faster than any other country as well. Achieving an increase of 54,4 % in exports, China has reached an export volume that is almost equivalent to the sum of exports of the four countries ranking after China.

During this period where we have observed an outstanding performance of China, the world textile and clothing trade has experienced a growth of 12,9%. This figure, compared with growth in Chinese exports, indicates that share of China in the market has substantially increased.

Another important observation during the past decade has been increasing impact of regional integrations on textile and clothing trade. Mexico’s export performance experienced within the NAFTA has become one of the remarkable examples of this trend.

As a matter of fact, structure of textile and clothing trade in NAFTA countries has notably changed during recent years. Thanks to trade facilities offered by this regional integration, Mexico has become the production center of textile and clothing products in NAFTA. With an enormous increase of 400% achieved in clothing exports in 1994-2000 period, Mexico has become the largest supplier of the US market as well.

Most recent development that would surely affect textile and clothing trade has become Doha Development Agenda. The EU has an ambitious attitude to market opening for textile and clothing products and voices that it is ready to go very far in reducing its tariffs if the others are ready to do the same. One should not forget not only non-agricultural market access negotiations but also implementation and rules talks have implications for textiles and clothing. Accordingly, ongoing multilateral negotiations whose conclusion will coincide with quota elimination are likely to result in further liberalization thus competition in the sector.

Having said that, we hope fellow developing countries are looking at market access opportunities in other developing countries. South-South trade has risen significantly over the last ten years from 30% in 1990 to 40% today, but trade barriers tend to remain high. For instance, the average tariff on textiles and clothing in developing and transition economies is 29%, while this is over three times the average tariff in textiles and clothing in the Quad countries- The US, Canada, the EU, and Japan.

All these developments – both elimination of quotas by 2005 and ambitious agenda of ongoing negotiations under the WTO as well as rising performance of China as an influential competitor- indicate the necessity to explore means to address challenges of new competition environment.

As far as Turkey is concerned, the market is quite liberal. Turkey, applies very low customs duties since mid 1990s, as a part of the establishment of the Customs Union with the EU. The quantitative restrictions applied in a limited number of products, again in accordance with the requirements of the Customs Union are partly compensating the gap in the protection of our market, resulting from the low customs duties.With the abolishment of the quotas, our market shall be opened to the textile and clothing products originating in third countries to a very great extent.

Despite this openness of Turkish market, other major textile exporting countries, whose development level is the same with or in some cases higher than Turkey, are continuing to protect their markets behind high customs walls, and a variety of technical and non-tariff barriers.

By the year 2005, aside from the implementation of the results of the Doha Development Agenda, Turkey's customs tariffs for textile and clothing products will range from 4% to 12%. A balanced development of trade in the sector requires that, other countries' tariffs should not be higher than these levels. Otherwise, while all major textile exporting countries benefit lower customs duties, and a limitless access after 2005 to Turkey's market, there will not be any chance for Turkey to access their markets. Certainly this is not fair and it is against, even the lowest standards of equity.

Despite the fact that, all signatories of the ATC, have committed themselves to significantly improve access to their own markets for textiles and clothing over the period from 1994 to 2004, since the ATC has entered into force, most of the major textile exporting countries did not act in a way so as to open their markets. There is not also such a signal that they are planning it in the future, after all quotas are abolished. Moreover, there is not such a commitment on the part of these countries, obliging them to open up their markets.

In the framework of the Turkey- EU Customs Union, Turkey has adopted, EU's common commercial and competition policies and achieved market access conditions for third countries that are similar to those of the EU. While the openness of the EU market can be compensated by the competitive advantage that EU possesses in other sectors and the relatively small share of the sector in the EU economies, the situation is different for Turkey. Within this framework, we would like to see a degree of willingness on the part of our competitors to liberalize their markets.

We hope that textile and clothing trade will develop in a manner, in which the protection levels of the all countries are similar. In my opinion, after the year 2005, all countries should bound their duties to the WTO, at rates which will not make entry into these markets totally impossible in the textiles and clothing products, and a multilateral comprehensive agreement that bans all kind of non-tariff barriers should be negotiated within the framework of the next round in order to achieve full liberalization in international textile market. Moreover, measures to combat practices that harm competition like, "environmental" and "social" dumpings should be developed.

Therefore, what we expect from these countries, which are preparing themselves for a liberalized international textile market, is to open up their own markets as well.

Nevertheless, international textile market will be greatly liberalized, at least markets of developed countries by the year 2005, and this liberal environment will certainly make competition much more tough.

Within this context, we believe that there is an urgent necessity to explore means to address challenges of new competition environment for countries around the Mediterranean, as this session of the conference is focusing on.

In this respect, the Euro-Mediterranean Partnership appears as a
well-suited instrument both to develop regional cooperation for coping with competitive pressures and to increase partners’ own competitiveness.

As you would recall, in November 1995, the EU and the 12 Mediterranean countries embarked on an ambitious agenda encompassing political, economic, financial, social, and cultural aspects. Economic pillar of the
so-called Barcelona Process is creating an area of shared prosperity.
In order to translate this principle into action, partner countries agreed to establish the Euro-Mediterranean Economic Area at the latest by 2010.

The Euro–Mediterranean Area aims at establishing an integrated area where inputs can circulate freely and thus benefit from the comparative advantages existing in the area. This offers plenty of possibilities for integrating the different stages of production wherever they are more competitive, to the benefit of Euro–Mediterranean industry and workers. In addition, the economies of scale offered by the integrated zone will certainly constitute an incentive for investors.

To this end, partner countries are to facilitate cross–trade between the different countries in the zone, through free trade agreements among themselves. This free-trade area is supposed to link the EU members with the 12 Mediterranean Partners. Consequently, together with EFTA and acceding candidate countries, this zone will include some 40 countries and 600-800 million consumers. In other words, Euro-Mediterranean area will become one of the largest trading entities in the world.

As one of the most active economies in the Euro-Mediterranean area, Turkey attaches great importance to conclusions of free trade agreements with partner countries. Despite its intensive efforts, Turkey has concluded a free trade agreement only with Israel. Negotiations with Egypt, Morocco, Tunisia and Palestinian Authority are underway. In addition, negotiations with Lebanon, Jordan, Algeria, Malta and Syria are at preparatory stage.

On this occasion, I would like to call once more all the Mediterranean partners for concluding free trade agreements with Turkey and other partner countries. I firmly believe that conclusion of all these agreements would be an important step towards regional integration.

Establishment of this regional integration will, naturally positively affect development of trade among the partner countries and in this context textile trade will also be a beneficiary of this integration. The fact that partner countries are competitors in the international markets, is not a barrier before development of co-operation among us. By co-operating we can protect both our domestic markets and our shares in international markets.

Textiles and clothing takes substantial place in Turkey’s economy and foreign trade. Despite the severe implications of economic crisis experienced in 200I, volume of Turkish textile and clothing trade reached to 16 billion dollars in 2002, with an increase of 21% compared to the previous year. Turkey is also an important importer of especially textile products. Textile imports reached to 3.8 billion dollars in 2002.

While the EU is the main trade partner for both imports and exports, share of Mediterranean countries in Turkey’s textile and clothing trade is approximately 3,5%. And, I do not consider that this ratio reflects the real potential.

Therefore, I believe, conclusion of all free trade agreements within the zone will significantly increase the volume of trade in textile and clothing products.

The idea behind the creation of a Euro-Mediterranean Economic Area is quite logical: European and Mediterranean countries can only progress and prosper within a stable environment with in which prosperity can be shared. Trade between partners plays an important role in context of this idea.

The 12 Partners around the Mediterranean rely largely on the EU for their economic development: some 60% to 75% of their trade is with the EU, the majority of their investment flows originate in the EU, the same goes for tourism, and many of them have substantial migration flows to the EU. It therefore makes sense to develop stronger economic ties between the two regions.

The question is often asked: why the Mediterranean Partners would have to go through the pains and costs of free trade? Would they not lose substantial parts of their such fiscal revenues as tariff duties? And to what benefits? All these are quite legitimate questions, and deserve to be answered properly.

First of all, if a Mediterranean country wishes to reinforce its economic strength in a difficult regional environment, mobilize national savings and attract foreign investment and technology, then it must prepare itself for tough competition from Southern EU countries, Eastern European countries, other Mediterranean countries and even Asian countries especially China after its WTO membership. All are aiming at a better share of the dynamic EU market, which is today the biggest importer in the world and where the new single currency is going to bring additional growth.

Secondly and the most important, any country in the world, except the ones choosing to live in complete autarchy, is nowadays confronted with economic globalization. While bringing the opportunity to access more and more to international markets under trade liberalization world-wide, it also faces countries, especially developing ones, with the challenge of competing other countries which produce high quality products with lower costs. In my opinion building regional integration in the Euro-Mediterranean area will contribute to the efforts of the Mediterranean countries to transform challenges of globalization into opportunities, as the intensified co-operation among them will surely help them to implement sound macro-economic policies and increase their industrial competitiveness.

Thirdly, creating a free trade area will be a strong incentive for partners to establish direct free trade ties between themselves, thus moving away from the present situation where only 5% of their trade is intra-regional. In this respect, geographical proximity, similar consumer preferences and the existence of diagonal cumulation of origin with the EU and all the Partners would give a greater incentive for intra-regional trade and, accordingly, it would start enjoying its full potential.

Ladies and gentlemen,

As you well know, in almost all Mediterranean Countries, the structure of the textile and clothing sector is mainly composed of small and medium sized enterprises. And you all are aware of various difficulties arising due to this structure, like difficulties to get financing, insufficient capital, difficulty to reach and use newly developed technologies and know-how of foreign trade. Such difficulties constitute one of the most important barriers to maintain production and to compete in international markets.

Consequently, it’s a fact that, closer cooperation in textile and clothing sector between European investors and Mediterranean countries will serve for realizing common interests for both sides in order to be able to compete with their dynamic and great competitors.

In this respect, I consider that establishment of the Euro-Mediterranean free trade area would be a stimulus for our sectors to enhance the co-operation among themselves. It will also contribute finding some solutions to the difficulties indicated above. As one of the biggest markets in the world is created and the links between the firms of partner countries are enhanced certainly textile-clothing sector of the whole region will benefit from the opportunities created. On the other hand, in addition to access each others markets freely, with the system of cumulation of origin to be established textile-clothing sectors of the partner countries will need to intensify their co-operation, in order to get much more access to the huge EU market.

As you all are aware, capacity and technology level of machine park are among the most important factors that determine competitiveness of a country in foreign markets for textile and clothing sector. Therefore, in order to maintain its competitive advantage the sector needs always to keep its machine park up-to-date, this brings us to the need for investment and lack of capital most of the Partner countries are suffering.

In this framework, the role of foreign direct investment is apparent. We expect that, with the establishment of the Euro-Mediterranean integration flow of foreign direct investment towards the partner countries will increase in a considerable amount, and this will contribute to close the gap of new technologies, know-how and capital which are extremely necessary for all of the partner countries.