The Impact of a Customs Union between Turkey and the EU on Turkey's Exports to the EU

This paper investigates Turkey's sectoral trade flows to the EU based on panel data from the period 1988 to 2002. Turkey's sixteen most important export sectors are analysed. Emphasis is placed on the role of price competition, EU protection, and transport costs in the export trade between Turkey and the EU. The empirical model used is an extended version of the gravity model. This study is also a contribution to the current discussion of whether Turkey should be granted full EU membership or a privileged partnership with the EU, which for Turkey would mean improved access to the EU market for its products, among other benefits. Our investigation focuses on the latter policy outcome: the impact of deepening the Customs Union between Turkey and the EU and applying the Common Agricultural Policy (CAP) to Turkish agricultural exports. To this end, the impact of the 1996 Customs Union covering most industrial goods and processed agricultural goods, is evaluated on a sectoral level. We also perform simulations to quantify the impact of the potential inclusion of agricultural goods, as well as iron and steel and products thereof, into the full Customs Union between Turkey and the EU which is still to come.