How Turkish exporters plan to avoid impact of US trade wars

As US President Donald Trump forges ahead with his trade wars, Turkish businesspeople are working on a new strategy to boost sales to the United States. The plan involves the creation of a Turkish industrial zone in the United States, where unpackaged food products from Turkey will be packaged and put on the market. The exportation of goods in bulk is meant to duck tariffs and make Turkish products more competitive in the US market.

The Turkish American Business Association (TABA) is leading the effort to establish the industrial zone, which would be the first of its kind for Turkey in the United States.

The association is already in contact with governors’ offices and organized industrial zones in all of Turkey’s 81 provinces to find entrepreneurs willing to invest in the US project, Erdal Cakici, TABA’s chief executive officer, told Al-Monitor. Some 170 businesspeople have so far applied to join the initiative, which hopes to attract 500 entrepreneurs. According to the plan, one or more Turkish zones will be set up in US states that offer the most favorable incentives in the Turkish areas of interest. Cakici said preliminary meetings have been held with White House advisers, the US Department of Commerce and administrators in several states.

US officials on the state level have promised support for the initiative, attracted by the prospect of new jobs, Cakici said, adding that the project would seek loan support from US creditors for the construction stage. TABA is currently preparing reports for the US authorities on the prospective size of investment, the land that is needed, the project’s financing and the number of jobs it could create.

According to the plan, Turkish products such as dried fruits, nuts and bay leaf will be shipped in bulk to the Turkish zone, where they will be packaged for marketing. The United States applies tariffs on packaged goods, but not on unpackaged bulk products.

TABA President Ali Osman Akat believes the US snack sector offers wide opportunities for Turkish exporters. In remarks published in Hurriyet, he said, “It will be a big advantage for us to ship from Turkey in bulk and do the packaging in America. There are tariffs of up to 7% on packaged products, while the tariff on bulk cargo is zero. Additionally, we have to diversify our products. In America, a single popcorn shop, for instance, has 300 types of seasonings.”

Referring to hallmark Turkish products, such as pistachios, hazelnuts and dried apricots, Akat said, “We will get a bigger advantage in the American market if we could season those in various ways — up to 150 varieties — and then package them according to American standards for sale.”

Turkish marble producers also stand to benefit from the project, according to Akat. At present, they trade mostly with wholesalers, but they could profit much more if they process the marble into refined products in the would-be Turkish zone. “Turkish [marble] producers receive hundreds of orders, and dozens of containers are shipped to the United States every day,” Akat said. “Yet because of lack of collaboration among Turks, they profit only $200-$300 from a $40,000 shipment. They pass the goods to wholesalers, who make the big profits.”

Turkish exporters could also target the fragrance market, according to Akat. “A perfume with a retail price of $6 in Turkey could be easily sold for $19 in the United States, or an air freshener sold for $7-$8 in Turkey could go for $25 in the United States,” he said. “We’ve conducted a market research, and US prices are higher on many goods. You pay the 20% tax and with the remaining profit you could still aim to grow in the US market.”

Cakici stressed that US-Turkey trade agreements covered more than 16,000 products. “For most of them, there are tax exemptions,” he said. “Tariffs are lower for semi-finished products, sometimes as low as zero. Hence, we are going to put in place a system in which the final packaging will be done in the United States.”

The trade could also involve machines, from large industrial ones to coffeemakers, Cakici said, noting that such products, too, could be shipped in semi-finished form and assembled for sale in the United States. Many electrical devices, for instance, require different voltages in the two countries, which is another reason to do the finishing in the United States, he added.

In 2017, Turkey’s exports to the United States totaled $8.7 billion, while its imports amounted to $11.9 billion. Turkey ranks as the 28th largest importer of US goods and the 34th largest exporter of goods to the United States, which clearly shows that it has a long way to go in boosting trade with the world’s largest consumer market.

“We need to invest in the United States,” Cakici said. “President Trump wants to boost production in the United States. We could well double our sales in the short run.”

According to Turkish government figures for the period from 2002 to October 2016, Turkish direct investments in the United States reached $3.7 billion, while US investments in Turkey amounted to $11.1 billion, second only to the Netherlands with $21.6 billion.

The planned industrial zone in the United States could help especially small- and medium-sized enterprises, which, unlike large companies, need support to develop their commercial ties. According to Akat, Turkey’s largest organized industrial zone, located in the northwestern town of Gebze, could serve as a successful model for the US project.

The formation of the industrial zone all depends on the investment appetite of Turkish entrepreneurs. How many entrepreneurs are willing to invest in the United States will become clear by the end of the year. The project is planned to kick off in mid-2019. If Turkish entrepreneurs hop to it, they could take advantage of the US trade wars with China and Europe. Because of expanding US tariffs, Chinese goods are set to become more expensive and Turkish products could stand a chance to substitute them. Turkish producers, however, need to start manufacturing in the United States and offer better prices and quality. In an additional long-term gain, a greater Turkish share in the American market would help boost the recognition and credibility of Turkish brands in general.