GED Study

Turkey’s EU integration
at a crossroads
What consequences does the new EU trade policy havefor economic relations between Turkey and Europe,and how can these be addressed?

Authors
Dr. Erdal Yalcin (ifo Institut)
Dr. Rahel Aichele (ifo Institut)Prof. Gabriel Felbermayr (ifo Institut & LMU Munich)

GED Study

Turkey’s EU integration
at a crossroads
What consequences does the new EU trade policy havefor economic relations between Turkey and Europe,and how can these be addressed?
April 2016

Turkey’s EU integration at a crossroads

Table of contents

The most important results of the study6

1. Introduction

8

2.

The development of treaties in EU-Turkish relations

10

2.1

Institutional challenges of the European Customs Union for Turkey

11

2.2 Possible integration policies between sovereign states

13

2.3

Potential long-term welfare effects for Turkey in the coming years

16

2.4 Alignment options being discussed for EU-Turkish trade relations

16

3.

Turkey’s economic relations with the EU over time

18

3.1

Trade developments between the EU and Turkey

22

3.2

Integration of Turkish industry into European production networks

26

3.3

Intra-industry trade in goods and Turkish added value

26

3.4 Foreign direct investment (FDI) in Turkey

30

3.5

30

Trade barriers

3.6 Rules of origin

31

3.7

Non-tariff trade barriers

36

4.

The ifo simulation model and necessary data

38

4.1

ifo simulation model: Methodology

38

4.2 Scenarios and EU free trade agreements taken into consideration

39

4.3 Empirical quantification of various integration policies

40

4

Turkey’s EU integration at a crossroads

5.

Simulation results: Integration scenarios for the EU and Turkey

44

5.1

Effects of the EU’s new free trade agreements on Turkey (status quo)

44

5.2

Deepening the EU-Turkey Customs Union

49

5.3

Comprehensive customs union between the EU and Turkey plus EU free trade agreements

51

5.4 Rolling back the customs union and implementing a free trade agreement between the EU and Turkey

60

6.

Comparison of welfare effects in all scenarios

70

7.

Summary and conclusions

74

Appendix

77

Bibliography

94

List of figures

94

List of tables

95

List of abbreviations

97

Imprint		

98

5

Turkey’s EU integration at a crossroads

The most important results of the study

1. Since Turkey’s inclusion in the European Customs

agricultural and service sectors. In the long term, Turkey

Union, the country’s economic relations with EU states

must offset the EU’s free trade agreements with third

have grown steadily closer. Since 2002 especially, bilat-

countries by concluding its own free trade agreementseral trade between Turkey and the EU has benefited fromwith the same countries.

the customs union. As well as the constant increase inbilateral trade in finished products, a steady rise in

3. By signing the Ankara Agreement, Turkey aligned its

trade in intermediate goods has been observed. An under-

external tariffs for industrial goods from third coun-lying reason for this development is Turkey’s integra-

tries with those of the EU. In return, there are no tariffs

tion into the production networks of European firms.

between the EU and Turkey for trade in industrial goods.

In addition to the high level of bilateral trade in inter-In the agricultural sector, there are considerably higher

mediate goods, this can also be seen in the high levels

trade tariffs in Turkey than in the EU or even the USA.

of foreign direct investment. Turkish national added value

At the same time, for most agricultural sectors the EU

benefits from integration into European production chains,

has no bilateral trade tariffs for Turkish goods, as longas increasingly more complex goods are produced foras defined quotas are not exceeded. External tariffs will

the EU. Germany has developed into Turkey’s leading

continue to exist for Turkey in the EU’s future trading

economic partner in terms both of trade and of invest-

partners, albeit at a low level, since the measures nego-ment.

tiated to facilitate European trade apply to the EU but
not to Turkey. For example, trade tariffs on motor vehi-

2. The Republic of Turkey has surrendered its trade-policy

cles will be abolished in the customs union after thesovereignty to the EU through its partial integration in

TTIP while Turkish companies will still have to face addi-

the European Customs Union. Turkey’s customs policy fortional costs of 2 percent. In the case of free trade between

industries covered by the customs union is determined

the EU and India, Turkish manufacturers of automobile

by the European Commission. By yielding trade-policy

parts will be further hit with tariffs of 14 percent. More-sovereignty, Turkey has received improved access to theover, the rules of origin will endanger production net-

EU28 states. The customs agreement offers Turkey a sig-works between Turkey and the EU. Investment in thenificant welfare gain by integrating Turkish industry into

production of intermediate goods in Turkey is becoming

the EU. The EU-Turkey customs agreement is, however,increasingly unattractive from the EU’s perspective, due

flawed with regard to free trade agreements between theto the problem of asymmetry in the customs agreement.

EU and third countries. Since Turkey is not an EU member state, it cannot participate in the EU’s negotiations

4. Empirical estimates confirm that increasing intensi-

on trade agreements with third countries (problem offication of economic integration between two coun-asymmetry). As a result, Turkey faces significant tradetries results in higher average growth in trade. However,disadvantages both in third countries and in the EU. Twoestimates also show that some comprehensive free tradepossible short-term corrections are theoretically con-agreements can lead to higher bilateral trade flows than,ceivable to remove the asymmetry Turkey experiences

for example, a customs union agreement. In Turkey’s

in the customs union. A) Turkey converts the customs

case, the question arises, at least in theory, of whether

agreement with the EU into a free trade agreement anda rollback of the customs union to a free trade agree-

thus regains full sovereignty over its trade. B) Turkey

ment represents a better alternative.

expands the existing customs agreement to include the6Turkey’s EU integration at a crossroads

5. Under the existing customs agreement, the EU’s new

8. The deepening of the EU-Turkey Customs Union and thefree trade agreements (e.g. the TTIP) have negative con-conclusion of basic free trade agreements between

sequences for Turkish welfare. Although the cumula-

Turkey and the EU’s new trading partners could result

tive negative effects are not too great at first, it becomesin a 2.13 percent rise in welfare for Turkey. Such a tradeclear at a sectoral level that important export sectors inpolicy could increase per capita income in Turkey by almost

Turkey are experiencing a very significant drop in trade.

USD 200. If Turkey is able to conclude free trade agree-

The asymmetrical customs agreement, which disadvan-

ments as comprehensive as those concluded by thetages Turkish exporters on the markets of the EU’s new

EU with the third countries in question, there will be

trading partners, is the cause of this sharp sectoral falla potential GDP growth of 2.5 percent. This wouldin exports. The negative effects for Turkish companies

currently correspond to a nominal GDP increase of USD

are particularly marked if the EU’s new partner coun-

18 billion.

tries already have a strong industry in the respective
sectors. In important industrial sectors, in particular, such

9. A deepening of the customs union with Turkey leads inas the automotive and machinery-construction sectors,

Germany and the EU to welfare gains, while a rollback offalls of up to 10 percent and 4 percent, respectively, are to

the customs agreement to a free trade accord is accom-

be expected for Turkish exports to the EU’s new partner

panied both in Germany and in the EU with negative

countries.

welfare effects.

6. An extension of the EU-Turkey Customs Union to the

10. The rollback of the EU-Turkey Customs Union to a bilat-

agricultural and service sectors would have a strongeral free trade agreement represents another trade policy

positive welfare effect on the Turkish economy. The

option; however, this would result in a fall in welfare ingross domestic product could rise by an additional

Turkey. There would be a drop in GDP of 0.81 percent.

1.84 percent. Turkish exports to the EU could increase

In addition, new EU free trade agreements would lead toby almost 70 percent. However, the rise in exports would

a further drop in welfare (of 0.96 percent). The main rea-vary from sector to sector. Whereas exports to the EU

son for this is the decline in European-Turkish produc-

could increase by 95 percent for the agricultural sector

tion networks resulting from a rollback of the customs

and 430 percent for the service sector, a fall in exports

union to a free trade agreement. Due to the need for cer-is to be expected in industrial sectors. By deepening thetificates of origin in free trade agreements, European

customs union there will be a reallocation of resources

companies deem Turkey to be an increasingly unattrac-

away from industry toward the service sector. Further-

tive location for the production of intermediate goods.

more, the increase in exports to the EU will be the result

Even if Turkey concludes free trade agreements withof a sharp decline in Turkish exports to other countries.

the EU’s new partner countries in such a scenario, thisThe deepening of the customs agreement could lead towill not lead to better welfare effects than in all of the

per capita income growth of USD 171.

other scenarios previously considered. Although Turkish exports to the corresponding third countries will

7. Following the deepening of the customs union, Turkishincrease, since the problem of asymmetry will no longer

exporters can compensate for the problem of asymmetry

exist, trade with the EU will decrease, which is of greaterin the event of new EU free trade agreements. The conclu-

importance due to current trade volumes. A rollback ofsion of the six EU free trade agreements under consider-

the customs union to a free trade agreement is not a wise

ation would result in a 1.89 percent growth in GDP for

trade policy for Turkey in comparison to the alternative ofTurkey, which is higher than would be the case under

deepening the customs union.

a deepening of the customs union alone, without the
new trade agreements. It is the growth in exports to the
EU in the service sector in particular that will compensate for a fall in Turkish exports to the EU’s new partnercountries. Although deepening the customs union willoffer medium-term compensation for the problem ofasymmetry, there is still the possibility for Turkey in thelong term to improve welfare insofar as the existing tariff asymmetry is balanced out by free trade agreementswith the EU’s new partner countries.

7

Turkey’s EU integration at a crossroads

1. Introduction

In May 2015 the Turkish government, together with repre-

The success of this economic integration has, however,sentatives of the European Union (EU), issued a Memoran-

been under threat for some time, since institutional

dum of Understanding with the objective of modernizing

weaknesses in the organization of the European customs

and expanding the existing customs union (CU) between

union for Turkey have brought about increasingly negative

the two parties.1 This desire to deepen economic policy

consequences for Turkish industry. The European Com-

relations between the EU and Turkey separately from themission’s focus on signing new regional trade agreements,

stagnating acquis communautaire may at first glance seemsuch as with the USA (Transatlantic Trade and Investment

surprising, but it represents a possible step toward pre-Partnership, TTIP), Japan and Canada for example, hasventing the impending breakdown in economic and trade

highlighted institutional weak points in what was previ-

relations between the two regions.

ously a successful customs union between Turkey andthe EU.

While political negotiations on Turkey’s accession to the
EU have not made much progress in recent years, bilateral

As a result of the customs union agreed with the EU,

economic relations are developing in a positive way despite

and the corresponding principle of joint customs har-the fact that Turkish membership of the customs union ismonization for third countries, Turkey is also obliged toinitially restricted to industrial goods and processed agri-

open up its market to these third countries when the EU

cultural goods. The starting point for this positive economic

signs free trade agreements with them. In return, Turk-development was the Association Agreement between Tur-ish companies can establish free commodity trade withkey and the former European Economic Community, thethe EU28 states, but cannot receive any of the benefits

so-called Ankara Agreement. Initiated in 1963, it resulted

that are negotiated for European exporters to third coun-in the signing of the present customs union in 1995, whichtries. Technically there is discrimination against Turk-came into effect a year later in 1996. Turkish industry has

ish exports in free trade agreements with third countries,

therefore been increasingly linked to the European econ-since EU trade agreements are negotiated at EU level andomy since then. In particular, German companies use thenon-members have no right to participate in agreements,

customs union with Turkey to produce intermediate goods

even when the effects of these agreements – as in the casecost-effectively in the country and then re-import themof the customs union – have dramatic economic implica-

for further processing in Germany. It is therefore unsur-

tions for states involved in the integration process withprising that the majority of foreign direct investment in

the EU.2

Turkey comes from German companies.
If the EU, together with Turkey, does not introduce any
The EU, meanwhile, is by far Turkey’s most important

appropriate measures, there is a risk that bilateral eco-trading partner and, in turn, Turkey is the EU’s sixth larg-

nomic relations will deteriorate and that Turkey’s integra-

est trading partner. Turkey enjoys strong economic rela-tion process with the EU will thus falter. In 2013 the for-tions with Germany in particular. While 9 percent of Turk-

mer Minister of Foreign Affairs and recently stepped down

ish exports go to Germany, approximately 10 percent of all

Prime Minister, Ahmet Davutog
� lu, already insisted that

Turkish imports are from Germany.

“a solution must be found for Turkey in the EU’s new free trade

1

2

8

EU-Turkish Memorandum of Understanding: http://ec.europa.eu/
commission/2014-2019/hahn/announcements/eu-and-turkey-announce-modernisation-custom-union_en.

In addition to Turkey, Andorra and the Republic of San Marino havethe same asymmetrical treaty obligations and rights in free trade
agreements between the EU and third countries.

Turkey’s EU integration at a crossroads

agreements”, since otherwise there would be an unfair trade

it is currently possible to differentiate between various freerelationship for Turkey and this would not be acceptable.3

trade agreements, the quantification of more comprehensive trade agreements, which are categorized as somewhere

Nowadays it is possible to understand the customs union

between a comprehensive free trade agreement and a cus-

agreement between Turkey and the EU, which is increas-

toms union, appears to be a challenging prospect as there

ingly regarded as being asymmetrical and unsustaina-

are few relevant comparable cases. Countries in the EEA

ble, only in its historical context. Turkey signed the agree-(European Economic Area) and EFTA members negotiate

ment regarding integration into the European customs

agreements with the EU in addition to pure trade treaties.

union in the belief that it would soon gain EU membership

These result in different degrees of integration according

and did not foresee the consequences that future EU trade

to the country concerned and will be considered here asagreements would have for its external trade relations. The

potential alternative economic relationships.

scope of the regional free trade agreements currently being
negotiated is a great surprise from the perspective of the

In broad terms this study intends to quantify the positive

1990s, since multilateral economic reforms took precedence

economic aspects of a more comprehensive economic inte-back then when the World Trade Organization was found-gration into the EU for Turkey while taking into accounted.4 By signing the customs agreement the Republic of Tur-international regionalization. At the same time, it will

key subsequently yielded some of its autonomy in terms ofconsider the country’s more comprehensive integration

trade policy, without adequately taking into consideration

into the EU and the accompanying surrender of politicalthe consequences of new EU free trade agreements.

sovereignty to the European institutions. From this economic and institutional interplay, plausible standard inte-

The objective of this study is, first, to describe the insti-

gration objectives for economic policy will be derived fortutional framework conditions that exist between the EU

EU-Turkish relations.

and Turkey while taking new European trade policy into
account, and to determine the institutional incompatibil-

It should be pointed out that this study cannot address

ities increasingly emerging as a result. Based on this, we

the subject of recommendations for action with regard towill subsequently quantify the possible economic effects

full Turkish membership of the EU. Such an analysis wouldthat the EU and Turkey can expect to encounter if there ishave to extend beyond the intended medium-term eco-no alignment in the bilateral economic treaties (EU-Tur-

nomic policy aspects and would require a more compre-key). Not only will the potential medium-term effects ofhensive analysis of the matter.

the TTIP be analyzed, but trade agreements currently being
negotiated by the EU and third countries, which may havelong-lasting consequences for the Turkish economy andEuropean-Turkish economic relations, will also be taken
into consideration. After the economic implications havebeen quantified for participating partners in the “statusquo”, possible alignments in specific EU-Turkey economic
agreements will be assumed in the following analysis
scenarios, and possible effects will be quantified. In particular, the core issue here is how a more comprehensive
Turkish integration into the EU through the customs union
would differ from Turkey’s disintegration in the form of apurely bilateral free trade agreement.
A key challenge for the study lies in econometricallyextracting the differences between a customs union and afree trade agreement using historical trade data. Although
3
4

See article in Handelsblatt, “Türkei droht mit Aussetzung der Zollunion”(Turkey threatens to suspend customs union), 11/05/2014.
In 1995, the World Trade Organization (WTO) was founded in Geneva
as a successor to the General Agreement on Tariffs and Trade (GATT).
One of its primary objectives was defined as the continual liberalization of global trade under the supervision of the WTO.

9

Turkey’s EU integration at a crossroads

2. The development of treaties
in EU-Turkish relations

Turkey’s continuous and, as yet, unfinished process ofof the customs union. Turkish membership of the Euro-

economic and political integration into the EU began withpean Customs Union is therefore seen by political deci-

the country’s application for membership of the Europeansion-makers as an intermediate step on the path to full

Economic Community on 31 July, 1959. Whereas politicalEU membership. Since then EU-Turkish trade in goods

integration efforts have stagnated in recent years, bilateral

has been consistently on the rise, and Turkish industry is

economic relations have flourished, especially since Tur-

subsequently increasingly connected with the European

key’s entry into the European Customs Union in 1996.

economy.

The trigger for this positive economic development was

As a member of the European Customs Union, Turkey yields

the signing of the Association Agreement, known as thesovereignty over its trade policy to the European Union.

Ankara Agreement, between the former European Eco-

The reality is that Turkey must accept EU trade policy innomic Community and Turkey in 1963. It was a precursor

the relevant industries. In addition, Turkey has no practicalto the present customs union, which was signed in 1995.

involvement in EU trade policy, as it is not a member of theTurkish membership of the European Customs Union was

EU and is therefore not represented in the relevant execu-

initially restricted to all industrial goods and processed

tive institutions.

agricultural goods traded between the EU and Turkey. Coal,steel, agricultural products, services and public contracts

Technically, membership of the European Customs Union

are excluded from the agreement.

means that countries can set a common external tariff with
the EU for third countries and in return receive free trade

The bilateral agreement has always been aimed at facili-in goods with the EU28 countries. However, the Ankara

tating Turkish integration with European countries while

Agreement also requires Turkey to recognize future freeat the same time deepening economic relations by means

trade agreements between the EU and third countries andTable 1: Timeline of previous EU-Turkey integration efforts
07/31/ 1959

Turkey applied to join the European Economic Community (EEC)

12/01/1964

Ankara Agreement between Turkey and the EU came into effect

01/22/1982

Turkey-EU relations suspended

09/16/1986

Turkey-EU relations resumed

06/06/1990

European Commission “cooperation package” adopted, aimed at accelerating cooperation between the EU and Turkey

12/13/1995

Signing of customs union (EU-Turkey)

12/11/1999

Turkey recognized as a candidate country

10/03/2005

EU began negotiations with Turkey on full EU membership

06/08/2011

Founding of the Ministry for EU Affairs

10/30/2014

Republic of Turkey announced the “National Action Plan for the EU Accession”, Phase 1

05/12/2015

Memorandum of Understanding (MoU) between the EU and Turkey, aimed at upgrading the EU-Turkish customs agreement.

Source: Turkish Ministry for EU Affairs (homepage)10

Turkey’s EU integration at a crossroads

thus to open up its market to the EU’s new free-trade

sively with the preferential customs regime of the Commu-

partners. But since Turkey is not a full member of the EU,

nity within five years as from the date of entry into force ofit neither receives the same free access to trade in third-

this Decision. This alignment will concern both the autono-

country markets nor does it have the right to sit at themous regimes and preferential agreements with third coun-negotiating table alongside the EU when it comes to dis-tries. To this end, Turkey will take the necessary measurescussing the terms of new free trade agreements.

and negotiate agreements on mutually advantageous basiswith the countries concerned. The Association Council shall

The legal basis for the declared rights and obligations ofperiodically review the progress made.

Turkey within the customs union is defined under DECISION
No. 1/95 OF THE EC-TURKEY ASSOCIATION COUNCIL oftoms union.

2.1 Institutional challenges of the European
Customs Union for Turkey

The common customs tariffs and preferential customs

The present treaty framework of the Ankara Agreement

arrangements are laid down in Article 13:

requires Turkey always to open up its market to the EU’s

22 December 1995 on implementing the final phase of the cus-

new free-trade partners, without receiving the equivalent(1) Upon the date of entry into force of this Decision, Turkey

free access to the markets of those countries from whichshall, in relation to countries which are not members of thethe European companies benefit. The country is required

Community, align itself on the Common Customs Tariff.

to pursue its own free trade agreement with any third
country in order to allow Turkish companies access to the(2) Turkey shall adjust its customs tariff whenever necessary

markets of the relevant third countries in the aftermath

to take account of changes in the Common Customs Tariff.

of the EU agreements (see DECISION No. 1/95). Figure 1
illustrates the additional trading effects expected follow-

Article 16 governs the recognition of preferential customs

ing the initiation of the TTIP. First, bilateral trade between

for third countries:

the EU and the USA will increase. Furthermore, American exports to Turkey will therefore also rise, since Tur-

(1) With a view to harmonizing its commercial policy withkey must guarantee European customs preferences to thethat of the Community, Turkey shall align itself progres-country within the framework of the customs agreement.

Figure 1: Possible additional trade flows after the TTIP enters into force

US exports
EU exports(including Turkish intermediate goods)

US

Turkishexports

exp
o

rts

EU exports(including USintermediate goods)

Source: ifo Institut and author’s own illustration

11

Turkey’s EU integration at a crossroads

Table 2: EU free trade agreements (FTAs) currently under negotiation
Initiated European FTA

Start of negotiations

Turkish initiatives

USA

2013

Framework plan on economic and trade cooperation (2009),
forum on deepening US-Turkish trade relations in response to the TTIP (2013)

CAN

2009

Public consultation on possible FTA (2010),
agreement establishing a joint economic and trade committee

ASEAN

2007

Singapore2007

FTA signed (2015)

Malaysia

2007

FTA signed (2014)

Vietnam2007

Six meetings of the joint economic and trade committee

Thailand2007

FTA negotiations expected to start soon

Philippines

2007

Japan

2012

Myanmar / Burma

2014

India

2007

FTA proposed

MERCOSUR

1999

Framework agreement for FTA signed (2008)

Fourth round of negotiations on a Japan-Turkey economic partnership agreement (EPA) (2016)

Source: European Commission, ifo Institut and author’s own illustration

An initial negative effect for Turkish companies will stem

tiate its own free trade agreements with all of the EU’s

from the retention of US tariffs on Turkish goods. Further-

new trading partners in order to overcome this problem of

more, it is to be expected that the export of finished prod-

asymmetry.6 Furthermore, Table 2 highlights that the EU

ucts from Turkey to the EU will also be disadvantaged,

is currently negotiating new free trade agreements andsince competition on the EU market will be intensified bythat Turkey is facing a major structural problem. It is also

the TTIP. It is unclear how far the export of Turkish inter-

clear from the table that Turkey aims to conclude its own

mediate goods to the EU will continue to rise due to thefree trade agreements with the EU’s future trading part-

increase in EU-US trade, and whether an increase will com-ners, as provided for in the Ankara Agreement; however,pensate for the disadvantages with regard to exports ofthe poor negotiating position resulting from the problem

finished goods to the USA.

of asymmetry remains

After the TTIP comes into effect, Turkey must seek its

The institutional weakness in the EU-Turkey Customs

own trade agreement with the USA so that Turkish exports

Union relationship, which has been outlined above, is ulti-

to the USA may be facilitated. It is obvious that negotiat-

mately a symptom of greater and more fundamental prob-

ing conditions for Turkey are very unfavorable with thelems in Turkey’s integration process into the EU. The mainpresent asymmetrical market-access rules under the cus-goal of this process is defined as Turkey’s full membershiptoms agreement, since there is absolutely no incentive forof the EU, which can be achieved after fulfilling the acquis

the USA to dismantle trade barriers for Turkish compa-

communautaire. This politically charted integration route,nies, because the Turkish market will be opened up to themin which all reforms in a candidate country are evaluatedunder the terms of the free trade agreement with the EUwith the aim of eventually ratifying full membership, leads(problem of asymmetry).5 By signing the customs agree-

to conflicts in Turkey with the intermediate reform goals,

ment Turkey has therefore yielded some of its autonomy

which are not explicitly defined as such by the EU and, forin terms of trade policy, without adequately taking into

example, Turkey. The amicable partial integration of Tur-consideration the consequences of new EU free trade

key into the European Customs Union, an agreement con-agreements. Turkey is therefore in a poor position to nego-taining institutional weaknesses which may lead to negative externalities – for instance with the TTIP and other

5

12

The EU-Turkey customs union has been initially restricted to allindustrial goods and processed agricultural goods. Coal, steel, agricultural products, services and public contracts are excluded from theagreement. The problem of asymmetry therefore initially only concerns industrial goods.

EU free trade agreements with third countries (Japan, Can6

In addition to Turkey, Andorra and the Republic of San Marino havethe same asymmetrical treaty obligations and rights in free trade agreements between the EU and third countries.

Turkey’s EU integration at a crossroads

ada, ASEAN, etc.) – is an example that can have particularly

Customs union

drastic economic repercussions.
Member states formulate a common customs policy toward
The anticipated institutional conflicts between the EU

third countries and thus yield a considerable portion of

and Turkey, as well as the possible economic repercussions,

their trade-policy sovereignty. In contrast to a free trademust be seen in the wider context. A long-term strategy

agreement, certificates of origin are not used. The tradefor Turkey’s integration into the EU would be, for example,

in goods between member states requires a lower level offor a lasting and functioning customs union to be definedmonitoring and therefore also generates a smaller amountas the integration goal. Within such an integration process,of administrative expenditure. Example: European Cus-in which no complex legal reforms would have to be imple-

toms Union.

mented for the 35 chapters (the EU acquis covers 35 themesor legal areas that must be fulfilled before receiving full
EU membership), the forming of a lasting economic policy

Common single market

basis between the EU and candidate countries such as Turkey is politically more likely.

In addition to a common external trade policy and the freemovement of goods between the member states, the free

A basic question for politicians both in Turkey and in the EU

exchange of capital, services and workers is also possible.

is whether Turkey’s inclusion in the EU Customs Union con-

Example: European Single Market.

stitutes a sensible integration strategy, particularly in viewof the extensive regional free trade agreements between
the EU and third countries. In principle, alternative trade

Economic union

agreements that do not involve the problem of asymmetry
with third countries, for example, are also conceivable.

In addition to the liberalization of flows of goods, capital, services and workers, a common economic policy also
exists. Example: European Union.

2.2 Possible integration policies
between sovereign states
Currency union
Economic integration processes can be categorized according to differing intensities, although cooperating coun-

Members determine stable exchange rates among them-tries often do not pass through all of the following steps

selves and centralize their pricing and monetary policy

sequentially.

within a central bank. Example:European Monetary Union.
Figure 2 illustrates two important correlations that canFree trade agreements

theoretically occur in the event of a deepening of economic
policy relations between sovereign states. On the horizon-

In internal relationships between the participating coun-tal axis, the previously discussed forms of economic policy

tries, trade tariffs for certain lines of goods are dismantled.

cooperation are displayed with an increasing level of inte-

The free trade of goods is restricted to products that weregration intensity. The green function which increases withproduced within the area covered by the free trade agree-

the level of integration intensity indicates a possible wel-ment (free trade area). Members of a free trade agreement

fare gain that contractual partners achieve if they disman-continue to have the sovereignty of defining their tradetle economic barriers bilaterally.

policy toward third countries in an independent manner.
Due to the resulting differences in external tariffs between

For example, two countries can deepen an existing bilateral

the member states of a free trade agreement, goods are“basic free trade agreement” by dismantling non-tariff bar-labelled with certificates of origin. This enables member

riers in addition to tariffs (e.g. harmonization of standards

states with higher tariffs to understand where products➝ “comprehensive free trade agreement”). As a consequence ofare imported from and, where necessary, to levy tariffs in

the additional reduction in trading costs, the flow of tradeaccordance with the respective national rules. Example:

and economic activities between the two contracting part-

European Free Trade Association (EFTA), North American

ners increases, and as a result an additional welfare effect inFree Trade Agreement (NAFTA).

the form of higher employment or higher wages is achieved.

13

Turkey’s EU integration at a crossroads

Figure 2: Intensity of economic integration and sovereignty over national policy
Average additional
welfare gain

Freedom in politicaldecisions at a national level

Increasing economic & politic integration
Basic free trade
agreement

Comprehensive
free trade agreement

Customs
union

Common single
marketEconomicunion

Currency
union

Source: ifo Institut – author’s own illustration

At the same time the figure shows that, with more com-

the greatest possible extent. In addition, goods can beprehensive economic integration, the contracting part-transported, from Turkey to Germany for example, with-ners limit their political decision-making independenceout a so-called certificate of origin having to be presented.

in their respective national territories. The contracting

These are usually necessary when two countries have dif-

partners accept compromises, for example when harmo-

ferent external tariffs for third countries. Certificatesnizing goods standards, which they cannot adapt unilat-of origin are used to prevent exporters from third coun-erally later on following exclusively national decisions, as

tries from exchanging goods with a free trade area via thelong as the comprehensive free trade agreement remains

country with the lower external tariffs and thus avoiding

legally valid.

the tariff costs that are not applied in individual member
states. With a customs union there is no need for a certifi-

The welfare gains that can be achieved through economic

cate of origin since the customs union’s external tariff forpolicy integration thus result in a reduction in the level ofthird countries is identical for all member countries. This

political freedom at national level. More generally, increas-

represents one of the fundamental differences between a

ingly comprehensive economic policy integration between

customs union and free trade agreement.

member states leads simultaneously to the slowdown ofnational policies. A larger transnational entity emerges

Bilateral trade between the contracting parties increased

with a uniform political framework.

following the EU-Turkey Customs Union. At the sametime – in contrast to a free trade agreement – there are

Figure 2 illustrates an optimal integration situation for aconsiderable incentives for EU companies to establish pro-customs union between two partners with a corresponding

duction facilities in Turkey in order to produce intermedi-

contractual framework. When applied to the EU and Tur-ate goods at lower labor costs and to deliver these to thekey, the graph would be understood as follows. With Tur-EU for further processing without providing certificates of

key’s inclusion in the European Customs Union in 1996,

origin. The customs union allows Turkey a more cost-

all bilateral tariffs between the contracting parties in theeffective integration into European production networks

industrial goods sector were lifted and the movement ofthan would be the case with a free trade agreement, inthe relevant goods within the customs union is free towhich the contracting parties’ external tariffs vary and14Turkey’s EU integration at a crossroads

Figure 3: Effects of an asymmetrical and flawed customs agreement
Average additional
welfare gain

Freedom in politicaldecisions at a national level

A

B

Increasing economic & politic integration
Basic free trade
agreement

Comprehensive
free trade agreement

symmetrical customs agreement
Source: ifo Institut – author’s own illustration

Customs
union

Common single
marketEconomicunion

Currency
union

asymmetrical customs agreement

the outsourcing of production facilities would not occur

the country has shown considerably greater restrictions indue to the requirement for certificates of origin (or not toits decision-making independence in relation to its trade

the same extent anyway). An EU-Turkey Customs Union

policy than is shown in Figure 2.

therefore leads to greater welfare increases than a morecomprehensive free trade agreement would.

The economic implications of the asymmetrical EU-Turkey
customs agreement are outlined in Figure 3. The greater

However, Figure 2 represents an optimal integration sce-loss of national sovereignty over Turkish trade policy,

nario for a customs union in which the assumption is madewhich is a result of the asymmetrical customs agreementthat the underlying customs agreement determines the(flawed agreement) with the EU, is demonstrated in Fig-

rights and obligations of all contracting parties towards

ure 3 by the lower red line. It runs underneath the darker

third countries in a symmetrical way. In the case of a

red function, which represents a symmetrical agreement

Transatlantic Trade and Investment Partnership between

formulation. At the same time the flawed agreement also

the USA and the EU, for example, this would mean that

leads to another welfare function, which is lower (green

Turkey must apply the same external tariffs to US compa-

curve) than for a symmetrical customs agreement (upper

nies as the EU does, which at the same time allows Turkish

green curve). This can be explained, for example, by thecompanies the same trade privileges on the American mar-fact that Turkish exports are disadvantaged by free trade

ket as European companies.

agreements between the EU and third countries (e.g. theTTIP, Japan, etc.) due to the problem of asymmetry. Point

Since, in the actual EU-Turkey customs agreement,

B shows the expected welfare effects for the existing

TurkeyEU-Turkey customs agreement compared with a symmet-• does not have a say in the EU’s free trade agreements

rical customs agreement, which would lead to the higher

with third countries, and• must reduce tariffs for exporters from third countries

welfare level in Point A. Furthermore, it becomes clear
from Figure 3 that the existing EU-Turkey customs agree-in accordance with EU guidelines, without receiving anment, in its present form, could theoretically have lower

equivalent cost reduction in the third countries in ques-

welfare effects than a more comprehensive free tradetion in exchange, as EU firms do,agreement between the two contracting partners.

15

Turkey’s EU integration at a crossroads

2.3 Potential long-term welfare effects
for Turkey in the coming years

The study by Felbermayr et al. (2015) and other analyses
have so far provided no indication of how Turkish industrial structures, especially in the medium term, will be

The quantification of the welfare effects between Turkey

affected by the TTIP and other EU free trade agreements

and the EU which have been presented here in theory havecurrently under negotiation. One of this study’s main goals

not yet been considered systematically. Several studies,

is to quantify these effects.

however, have analyzed the potential long-term cumulative welfare effects of a comprehensive agreement between
the EU and the USA, and have identified the cumulative
welfare effects for Turkey in the process. Felbermayr, Heid,

2.4 Alignment options being discussed
for EU-Turkish trade relations

Larch and Yalcin (2015), in an empirical study, determined
the long-term effects for Turkey, among other countries,

Turkey is in a poor position to negotiate its own free tradein cumulative form. Alignments at industry level were notagreements with the EU’s new free-trade partners in orderanalyzed in greater depth in this study. Instead, greater

to overcome the threat of imbalance. Various politicalconsideration was given to a situation in which Turkeyalignment options are currently being discussed in Turkey,

would have a new trade and welfare equilibrium following

although it is questionable whether some of the proposals

a 10-year alignment period.7

can be accomplished in a timely manner. Four scenarios are
possible over the coming years.

Table 3: Long-term welfare effects after the TTIP
EU
average

Germany

USA

TurkeyNonTTIP

Globalaverage

3.90 %

3.50 %

4.90 %– 1.50 %– 1.00 %1.60 %

Source: Felbermayr et al. (2015)a) EU membership for Turkey
The prospect of EU membership, which would integrate
Turkey into all EU trade agreements on an equal footing,is not realistic in the foreseeable future. In the last five
years of accession negotiations, the EU member states

It is clear from existing studies that a comprehensive tradeand Turkey have agreed to open two negotiating chap-

agreement between the USA and the EU would lead to con-ters (Chapter 12: Food Safety, Veterinary and Phytosani-

siderably more negative welfare effects for Turkey in thetary Policy; Chapter 22: Regional Policy and Coordination

long term than it would in other countries not participat-of Structural Instruments). The opening of other chaptersing in the TTIP, for example. A possible reason for thesewas negotiated in light of the recent refugee crisis, but theabove-average effects can be found in the asymmetricalprospect of Turkey gaining full EU membership in the neartrade agreement between Turkey and EU. The TTIP will

future continues to look unlikely.

certainly have a positive effect for Turkey at first, sincecheaper US imports to the EU Customs Union will also
be passed on to Turkish consumers. However, at the sameb) Adoption of EU mandate for Turkey

time Turkish companies will also notice a large fall in theirsales in the US as – in contrast to EU firms – they will con-There is a theoretical possibility of Turkey participatingtinue to be faced with American trade barriers. At the samein all EU trade negotiations with third countries on antime competition on the EU market, as well as the homeequal footing without the country having full EU member-market, will intensify for Turkish companies. As for Turk-

ship. This approach would substantially compensate forish producers of intermediate goods, there is a chancethe existing problem of asymmetry, since access to the US

that they too will profit from higher levels of exports bymarket would also be facilitated for Turkish companies.

European companies to the USA. However, the long-term

In practice, however, such a contractual adjustment would

cumulative simulations point towards the fact that thisbe difficult to imagine, as the European Commission con-positive effect will be less marked than the accompanying

ducts European free-trade negotiations and will not adopt

negative trading effects.

a political mandate for a non-member state. Furthermore,
the EU’s Trade Commissioner, Cecilia Malmström, hasclearly stated that negotiations on new free trade agree-

7

16

In a TTIP study, Egger et al. (2015) also report negative cumulative
welfare effects for Turkey.

ments can take place only between the EU and the relevant
third countries.

Turkey’s EU integration at a crossroadsc) Rollback of the customs union to a free trade agreement

Intermediate findings:
From Turkey’s point of view, a third institutional reformthat would eliminate the previously outlined problem of

The Republic of Turkey has surrendered its trade-asymmetry is the rollback of the customs union to a freepolicy sovereignty to the EU through its partial integration

trade agreement. This possibility has been repeatedly

in the European Customs Union. Turkey’s customs policy

announced by the Turkish Minister of Economic Affairs

for industries covered by the customs union is determined

as a realistic policy option. Such a reform would mean aby the European Commission. By yielding trade-policy

setback to Turkey’s process of EU integration in terms ofsovereignty, Turkey has received improved access toeconomic policy, since Turkey would obtain greater auton-

the EU28 states. The customs agreement offers Turkey a

omy in international economic policy. At the same time

significant welfare gain by integrating Turkish industry

there would be negative effects for Turkish industry in theinto the EU.

event of an EU-Turkey free trade agreement, since expensive checks would be required to ascertain the origin of

The EU-Turkey Customs Union is, however, flawed withgoods traded with the EU. In the case of a free trade agree-

regard to free trade agreements between the EU andment, determining which goods can continue to be traded

third countries. Since Turkey is not an EU member state,

between the EU and Turkey without tariffs is possible only

it cannot participate in the EU’s negotiations on tradeby means of such rules of origin.

agreements with third countries. As a result, Turkey faces
significant trade disadvantages both in third countries
and in the EU.

d) A more comprehensive customs union
Two possible short-term corrections are theoretically
A viable and realistic way of avoiding the disadvantages

conceivable to remove the asymmetry which Turkey

caused by the Ankara Agreement is to deepen the exist-

experiences in the customs union. A) Turkey converts theing customs agreement further so that the advantages forcustoms agreement with the EU into a free trade agree-

Turkey outweigh the disadvantages. To this end services

ment and thus regains full sovereignty over its trade.

and agricultural products, which were previously excludedB) Turkey expands the existing customs agreement tofrom the tariff exemption, must be included in the agree-

include the agricultural and service sectors.

ments. Furthermore, the European customs agreement
could be expanded with a passage in which all of the EU’s

In the long term, Turkey must offset the EU’s free trade

trade agreements with third countries are automaticallyagreements with third countries by concluding its own

extended to customs-union members too.

free trade agreements.

In the following chapters, Turkey’s economic integration,
primarily with the EU, will be presented initially. The
depiction of sectoral trade relations with respect tointermediate products is of particular interest. By using
statistics on trade in intermediate products, the integration of Turkish industry into EU production structures up
until now can be determined. The presentation of European-Turkish trade in intermediate goods is of particularinterest for the study since future welfare effects in various integration scenarios depend largely on the economic
interconnectedness between the EU and Turkey. Foreign
direct investment between Turkey and the EU is also presented. Special attention is paid here to German-Turkish economic relations, since Germany represents the mostimportant economic partner for Turkey in terms both of
trade and of direct investment. Finally, an overview of theexisting trade barriers will be provided.

17

Turkey’s EU integration at a crossroads

3. Turkey’s economic relations
with the EU over time

In broad terms, the removal of economic barriers between

the course of the last 10 years in terms of its economy.

the EU and Turkey since the signing of the Ankara Agree-

From 2002 until 2011, annual economic growth varied

ment and, in particular, since the expansion of the EU Cus-

between 5 percent and 9 percent (except in the crisis years

toms Union, has had a positive impact on the Turkish econ-of 2008 and 2009). Per capita income was $ 10,530 in 2014.

omy. The various economic profiles (for partner countries,

At the same time, it is clear that the country still has asectors, time) are considered below in order to show thestrong potential to catch up in economic terms, withkey developments.

Germany for example (income relative to Germany is
22 percent). Furthermore, the country’s economic dynamic

Figure 4 summarizes important economic data for Turkey

has waned considerably in the last three years. As well as

in recent years. With 76 million inhabitants, Turkey has

tensions in internal policy, a series of crises in neighboring

been one of the fastest growing regions in the world overcountries such as Syria have also played a role.

Figure 4: Important data for Turkey (in 2014)
GDP(in billion $)799.5

GDP per capita(in $)
10,530Relative to GER(per capita)22.1 %

Population(in millions)
75.9

9.4

9.2
8.4

Poverty(Proportion with less than $ 2 / day)
0.4 %

8.8

6.9
6.2
5.3
4.7

4.2
2.9
2.1
0.7

2001
2002

2003

2004

2005

2006

2007

2009

2008

2010

– 4.8
– 5.7

n GDP growth (%)
GDP per capita growth (%)
Source: World Development Indicators – World Bank and author’s own illustration

18

2011

2012

2013

2014

Turkey’s EU integration at a crossroads

Figure 5: Development of Turkish exports
Turkishexports 2014:
157 bn. USD

USD (billions)100

55.7 %

75

40.2 %

50

25
9.6 %
4.0 %
0
‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

EU28 (incl. GER)
Germany
USA
Source: OECD STAN and author’s own illustration

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

Rest

3.1 Trade developments between
the EU and Turkey

those from EU states since 2005. Since 2012, exports andA key factor in Turkey’s positive economic develop-

Figure 7 shows the five most important EU export destina-

ment, especially after the difficult economic crises oftions for Turkey in recent years. These are Germany, Greatthe late 1990s, is its increasing economic integration with

Britain, Italy, France and Spain. In particular, exports by

the EU.

Turkish companies to Germany and Great Britain have con-imports with those countries have stagnated.

tinued to grow since 2009, whereas in the other important
Figure 5 and Figure 6 illustrate the strong growth both

EU markets no significant changes in sales figures havein exports and in imports in Turkey since 1996. Due to thebeen observed. For many years, the biggest imports fromdifficult economic situation in the late 1990s, which lasted

the EU to Turkey have also come from Germany, followed

until 2001, a constant and significant rise in trade can beby Italy, France, Spain and Great Britain. Although Turk-

seen only from 2002 onwards. In addition, it is clear that

ish imports from Germany increased on average up to 2013,

the EU is Turkey’s most important trade partner, account-

there is no longer any significant growth in the volume ofing for 36 percent of imports and 40 percent of exports.

imports from the other four important European partner

With approximately 9 percent of all Turkey’s exports andcountries.

imports, Germany is Turkey’s most important trade partner in terms of individual countries. For the years follow-

Figure 9 shows Turkey’s top five trading partners outside

ing the most recent economic crisis in 2008/09, it is appar-

the EU. It is noticeable that the USA was the most importantent that exports to countries outside the EU also increased

sales market for Turkish companies for many years. Since

sharply up until 2012. In terms of trade with non-EU coun-

2007, Iraq, Iran, the United Arab Emirates and Russia havetries, imports have grown at a considerably higher rate thanbecome important markets with very high growth rates.

19

Turkey’s EU integration at a crossroads

Figure 6: Development of Turkish imports
Turkishimports 2014:240 bn. USD

USD (billions)150

58.1 %
125100
36.7 %
75

50

25

9.2 %
5.3 %

0
‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

EU28 (incl. GER)
Germany
USA
Source: OECD STAN and author’s own illustration

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

‘11

‘12

‘13

Rest

Figure 7: Top five Turkish export destinations / in the EU
USD (billions)
16
14
12

10

8
6
4
2

0
‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

Germany
Spain
FranceGreat Britain
Source: IMF Direction of Trade (DoTs) and author’s own illustration

20

‘99

‘00

Italy

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘14

Turkey’s EU integration at a crossroads

Figure 8: Top five Turkish import countries / from the EU
USD (billions)
25

20

15

10

5

0

‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

‘99

Germany
Spain
FranceGreat Britain
Source: IMF Direction of Trade (DoTs) and author’s own illustration

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

Italy

Figure 9: Top five Turkish export destinations / outside the EU
USD (billions)
14

12

10

8

6

4

2

0
‘90

U.A.E.

‘91

‘92

Iran

‘93

‘94

Iraq

‘95

‘96

Russia

‘97

‘98

‘99

‘00

‘01

‘02

USA

Source: IMF Direction of Trade (DoTs) and author’s own illustration

21

Turkey’s EU integration at a crossroads

Figure 10: Top five Turkish import countries / outside the EU
USD (billions)
35

30

25

20

15

10

5

0
‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

U.A.E.
Iran
Iraq
RussiaUSA
Source: IMF Direction of Trade (DoTs) and author’s own illustration

Whereas Turkish exports to the USA have experienced only

tries are intermediate goods which can be further

moderate growth since the financial crisis, there has beenprocessed in the respective destination countries.

much less volatility in the other four countries.
The USA was the most important trading partner up
until 2000 in terms of Turkey’s imports from non-EU

3.2 Integration of Turkish industry
into European production networks

countries. As a result of Turkey’s economic upswing after
2002, Russia became Turkey’s most important import

A very similar trade pattern can be seen in Figure 14 andpartner by a large margin. This is mainly due to oil andFigure 15, which show Turkey’s overall bilateral imports

gas imports. The import of raw materials from Iran also

by country and for intermediate goods, respectively. It canrose sharply.

already be deduced from the aggregated data that Turkey isincreasingly integrated into the European production net-

For an emerging nation, it is no surprise that Turkey

work, especially in the industrialized EU states.

has a trade deficit with most of its trading partners. However, in recent years Turkish imports have shown a ten-

The integration of Turkish industry into the EU economy

dency to increase consistently faster than exports; thisbecomes even clearer when trade in finished and inter-must be increasingly financed by foreign capital flows,

mediate goods is examined more closely at a sectoral level.

and Turkey is therefore more dependent on external finan-

Figure 16 demonstrates that, in the Turkish metals sec-ciers (see Figure 11). Figure 12 shows the distribution oftor, for example, 95 percent of imports from the EU are

Turkish exports among all EU states for 2014. In recent

currently intermediate goods. At the same time, approx-

years, in addition to Germany, the large EU countries ofimately 85 percent of exported metal goods to the EU are

Great Britain, France, Italy, Spain and the Benelux nations

intermediate goods. A similar bilateral trade pattern can behave also developed into important sales markets for Turk-

found in the chemical industry. Strong European-Turkish

ish exporters. Furthermore, it is clear from Figure 13 that

trade in intermediate goods can also be found, to a lesser

a considerable proportion of Turkish exports to EU coun-extent, in the automobile sector.

22

Turkey’s EU integration at a crossroads

Figure 11: Balance of trade with top 10 trading partner
Exports / imports – USD (billions)Share – Percent

100

50

80

40

60

30

40

20

20

10

0

EU28

Germany

Iraq

UK

Italy

Francen Turkish exports in 2014 n Turkish imports in 2014

Share of overall Turkish exports
Source: Turkish Statistical Institute and author’s own illustration, UAE = United Arab Emirates

USA

RussiaSpain

U.A.E.

0

Share of overall Turkish imports

Figure 12: Turkish exports to EU countries

USD billions, 2014: n 20 – 15 n 15 – 10 n 10 – 5
Source: OECD STAN and author’s own illustration

n 5–4

n 4–3

n 3–2

n 2–1

n 1–0

23

Turkey’s EU integration at a crossroads

Figure 13: Turkish intermediate goods exports to EU countries

USD billions, 2014: n 7 – 6 n 6 – 5 n 5 – 4 n 4 – 3 n 3 – 2
Source: OECD STAN and author’s own illustrationn 2–1 n 1–0

Figure 14: Turkish imports to EU countries

USD billions, 2014: n 26 – 20 n 20 – 15 n 15 – 10
Source: OECD STAN and author’s own illustration24

n 10 – 5

n 5–4 n 4–3

n 3–2

n 2–1

n 1–0

Turkey’s EU integration at a crossroads

Figure 15: Turkish intermediate goods imports to EU countries

USD billions, 2014: n 12 – 10 n 10 – 7 n 7 – 5 n 5 – 4 n 4 – 3
Source: OECD STAN and author’s own illustrationn 3–2 n 2–1

These descriptive statistics show very clearly that Turkey is increasingly used by European companies as a
production location for intermediate goods where

n 1–0

GLi =

(X i + M i) – |X i–M i| = 1 – |X i – M i|
Xi + MiXi + Mi;0 ≤ GLi ≤ 1

Where X = export, M = import, i = sector.

components are improved and subsequently re-imported
into the EU.

The GL value is close to 0 if a country either exclusively
exports or exclusively imports within a sector (no intra-industry trade). A GL value of more than 0.5, however, means

3.3 Intra-industry trade in goods andTurkish added value

that, in the corresponding sectors, exports and imports
between the countries in question have similar characteristics (intra-industry trade).

In order to quantify the extent of bilateral EU-Turkish trade
within individual sectors, the Grubel-Lloyd index (GL index)

Table 4 lists the GL index for all industrial sectors between

can be applied. This index quantifies so-called intra-in-

the EU and Turkey. For many sectors the value is above 0.5,

dustry trade in goods. If, within a sector, two countries have

which points to a relatively high level of intra-industry trade.

a high level of bilateral trade flows (both imports and ex-

In particular, in the motor-vehicle, automobile-part andports), then the exchange of goods is not based on the trad-

metal-processing sectors, which are characterized by aing partners’ specialization in certain products. Intra-in-

high amount of bilateral trade in intermediate goods as

dustry trade of this sort can be driven on the one hand by

already demonstrated (see Figure 16), the GL value is espe-

heterogeneous products within a single sector, and also by

cially high.

intermediate goods that are exchanged between the EU and
Turkey within a bilateral production network. The Grubel-

Figure 17 quantifies Turkey’s imported share of added value

Lloyd index (Grubel and Lloyd, 1971) is calculated as follows:in German industry as a whole. In 1995, the level of Turkish
added value in German goods was USD 2 billion. This value
increased six fold to USD 12 billion by 2011. In Figure 18,
the average distribution of European added-value shares

25

Turkey’s EU integration at a crossroads

Figure 16: Trade in intermediate and finished products in the metals sector

Turkish exports to the EU in USD billions – metal processing
USD (billions)

Percent

10

100

8

80

6

60

4

40

2

20

0

0
‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14

Turkish imports from the EU in USD billions – metal processing
USD (billions)

Percent

10

100

8

80

6

60

4

40

2

20

0

0
‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14

n Intermediate goods n Finished goods
Share of intermediate goods
Source: OECD STAN and author’s own illustration

26

Share of finished goods

Turkey’s EU integration at a crossroads

Table 4: Intra-industry trade between the EU and Turkey (USD thousands)
SectorTurkishimports from the EU

Turkishexports to the EU

Grubel-Lloyd
Index

1 215 510.0

2 413 295.0

0.67

Food production
Beverages and tobacco

537 485.7

119 116.4

0.36

Textiles

1 982 716.0

11 360 354.0

0.30

Clothing

548 524.3

8 263 747.0

0.12

Leather

445 471.4

478 373.3

0.96

Wood

1 007 775.0

855 276.7

0.92

Paper, publishing

2 352 764.0

539 052.2

0.37

Petroleum, coal products

6 326 937.0

1 048 781.0

0.28

Chemicals, rubber, plastic

16 866 191.0

5 827 609.0

0.51

935 629.4

1 295 111.0

0.84

Ferrous metals

7 222 918.0

2 177 853.0

0.46

Metals

3 317 393.0

1 941 958.0

0.74

Metal processing

2 184 005.0

2 938 686.0

0.85

Automobile vehicles and parts

15 184 622.0

14 433 781.0

0.97

Transport equipment

2 522 823.0

1 050 269.0

0.59Electronic equipment

2 199 791.0

1 865 636.0

0.92Machinery and equipment

19 797 258.0

9 513 138.0

0.65

634 679.4

504 218.3

0.89

Mineral processing

Manufacturing
Source: IMF Direction of Trade (DoTs) and author’s own illustration

Figure 17: Turkish share of added value in German output
USD (billions)

Percent

15

0,25

12

0,20

9

0,15

6

0,10

3

0,05

0

0,00
‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

n Turkish added value (USD BN)

Turkish added value in percent
Source: World Input-Output (WIOD), author’s own calculations and illustration

27

Turkey’s EU integration at a crossroads

Figure 18: Share of added value in German machinery – 2011
Foreign added value from the EU and Turkey ~12%
2 % Rest EU

3%

Turkey

15 %

Italy

13 %

France10 %Great Britain

8%

Netherland

3 % Hungary
4 % Sweden

6 % Czech Republic

6 % Spain

6 % Belgium

7 % Poland

8 % Austria

Source: World Input-Output Database (WIOD), author’s own calculations and illustrationin German machinery is depicted. It shows that approxi-

Figure 20 illustrates the development of foreign direct

mately 12 percent of the added value of German machin-investment by German companies in Turkey. Here too it is

ery comes from European and Turkish imports. On aver-clear that there has been steady growth since 1996, withage, 3 percent of these European deliveries are attributablethe exception of a temporary interval during the years of

to Turkey. These statistics confirm the constant rise in thecrisis from 1999 to 2002. Then, in Figure 21, the German

importance of imports of intermediate goods from Turkey

investment positions for the four most important sectors

to the EU.

are shown. Manufacturers of motor vehicles and automobile parts are the largest German investors, accounting for

Figure 19 presents the composition of annual Turkish

approximately 40 percent of foreign direct investment.

exports to the EU by making a distinction between high,
mid-high, mid-low, and low technology goods. It becomes

In combination with the strong trade in intermediate goods

very clear that the introduction of the customs union has

these statistics confirm the assumption that, in recent

led to a significant rise in exports to the EU which are cate-years, Turkey has been increasingly integrated into Euro-gorized as mid-high and mid-low technologies.

pean economic networks. Here the growth in Turkish
exports is attributable not only to an increase in foreign
sales figures but also to a considerable extent to a rise in

3.4 Foreign direct investment (FDI) in Turkey
Foreign direct investment (FDI) is a key factor that causeson the one hand the relatively high amount of bilateral
trade in intermediate goods between the EU and Turkey
and, on the other hand, the increasing technological complexity of exports (higher added value) associated with thecustoms union.

28

the added value of the exported goods.

Turkey’s EU integration at a crossroads

Figure 19: Complexity of Turkish exports
100 % = 1
1,0

0,8

0,6

0,4

0,2

0,0

‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

n HITECH n MHTECH n MLTECH n LOTECH
Source: OECD STAN and author’s own illustration

Figure 20: Foreign direct investment in Turkey (from Germany)Euro (millions)

Number of companies

8 000

500

6 400

400

4 800

300

3 200

200

1 600

100

0

0
‘89

‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

n German FDI in Turkey n Turkish FDI in Germany (left)
Number of German companies in Turkey
Number of Turkish companies in Germany
Source: German Federal Bank and author’s own illustration

29

Turkey’s EU integration at a crossroads

Figure 21: Sectoral distribution of FDI across the top four sectors
Euro (billions)
4

3

2

1

0

‘89

‘90

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

n Prod. of vehicles and parts n Chemical Ind. n Mechanical engineering n Manufacturing n.e.c.
Source: German Federal Bank and author’s own illustration

3.5 Trade barriersIntermediate findings:
Tariff-free trade in industrial goods between Turkey andSince Turkey’s inclusion in the European Customs Union,

the EU is made possible by the customs union. In the casethe country’s economic relations with EU member statesof Turkey, a special feature of the customs union is that thehave grown consistently. Especially since 2002, bilateral

agricultural sector was initially excluded from the customs

trade between Turkey and the EU has benefited greatly

agreement. Table 5 lists the average bilateral tariffs applied

from the customs union. As well as the constant rise inbetween the EU and Turkey. In accordance with the rules ofbilateral trade in finished products, a steady rise in thethe customs union, there are no tariffs for companies fromtrade of intermediate goods has also been observed.

partner countries in industrial sectors. At the same time,

Turkey is increasingly integrated into the production

Table 5 highlights another particular feature of EU-Turkey

networks of EU firms. Alongside the high level of bilat-

trade relations. While Turkey continues to protect its agri-

eral trade in intermediate goods, this can also be seen in

cultural sector with tariffs that are sometimes very high,the high levels of foreign direct investment. Germany has

the EU has eliminated almost all tariffs for Turkish agri-

developed steadily into Turkey’s most important economic

cultural imports (sometimes only for defined quotas). Thispartner. Turkish national added value benefits from inte-

asymmetrical tariff policy can be partly explained by thegration into European production chains, as increasingly

fact that the Turkish agricultural industry does not repre-

more complex goods are produced for the EU.

sent competition to the EU, since productivity in the Turkish agricultural sector is considerably lower.
Figure 22 illustrates the external tariffs of the EU, Turkey
and the USA for third countries. Since all three countries
are members of the World Trade Organization, a Most
Favored Nation tariff applies, meaning that the MFN tariffsof these countries apply for all trading partners. For indus-

30

Turkey’s EU integration at a crossroads

Table 5: Bilateral tariffs between Turkey and the EU (in percent)
Bilateral tariffs applied (2013)
GTAP sector

Simple average

Weighted average

EU from TUR

TUR from EU

EU from TUR

TUR from EU

1

Paddy rice

0.00

32.89

0.00

31.47

3

Grain

0.00

50.00

0.00

108.43

4

Vegetables, fruit, nuts

0.72

35.71

1.28

40.94

5

Oilseed

0.00

11.36

0.00

19.39

6

Sugar cane, sugar beet

0.00

19.30

0.00

19.30

7

Plant-based fibers

0.00

0.00

0.00

0.00

8

Agricultural crops nec

0.00

17.51

0.00

13.95

9

Cattle, sheep, goats, horses

0.00

39.14

0.00

43.19

10

Animal products nec

0.00

7.21

0.00

1.55

12

Wool, silk

0.00

0.00

0.00

0.00

13

Forestry

0.00

0.00

0.00

0.00

14

Fishing

0.00

13.52

0.00

7.67

15

Coal

0.00

0.00

0.00

0.00

16

Oil

0.00

0.00

17

Gas

0.00

0.00

18

Minerals nec

0.00

0.00

0.00

0.00

19

Meat: cattle, sheep, goats, horses

0.00

43.75

0.00

125.2020

Meat products nec

0.00

65.86

0.00

4.99

21

Plant-based oils and fats

0.00

20.42

0.00

9.98

22

Dairy products

0.00

96.79

0.00

132.2223

Processed rice

24

Sugar

0.00

112.000.00

131.9625

Food products nec

0.27

21.74

0.31

10.97

26

Beverages and tobacco

0.00

8.30

0.00

2.76

27

Textiles

0.00

0.00

0.00

0.00

28

Clothing

0.00

0.00

0.00

0.00

29

Leather

0.00

0.00

0.00

0.00

30

Wood

0.00

0.00

0.00

0.00

31

Paper, publishing

0.00

0.00

0.00

0.00

32

Petroleum, coal products

0.00

0.00

0.00

0.00

33

Chemicals, rubber, plastic

0.00

0.02

0.00

0.00

34

Mineral products nec

0.00

0.00

0.00

0.00

35

Ferrous metals

0.00

0.00

0.00

0.00

36

Metals nec

0.00

0.00

0.00

0.00

37

Metal products

0.00

0.00

0.00

0.00

38

Automobile vehicles and parts

0.00

0.00

0.00

0.00

39

Transport equipment nec

0.00

0.00

0.00

0.00

40

Electronic equipment

0.00

0.00

0.00

0.00

41

Machinery and equipment nec

0.00

0.00

0.00

0.00

42

Manufacturing nec

0.00

0.00

0.00

0.00

45.00

45.00

Source: WITS – Trains Tariff Data

31

Turkey’s EU integration at a crossroads

Figure 22: Tariff distribution for agricultural and industrial goods

MFN tariffs in 2013 – Agricultural goods

MFN tariffs in 2013 – Industrial goods

256 %

64 %

16 %

4%

EU
USA
TurkeyGoods on the HS6 level are placed on the horizontal axis in decreasing order of Turkish MFN tariffs.
The classification differs by product (e.g.: 090210 = Green Tea, not fermented). HS2 defines chapters (e.g. 09 = coffee, tea, mate and spices).
HS4 groups goods within the HS2 chapter (example: 0902 = tea)
Source: WITS – TRAINS Tariff Data and author’s own illustration		trial goods, it is apparent that Turkish and the EU external

Table 6 lists weighted average tariffs in the agricultural

tariffs are identical. The rules of the customs agreement

and industrial goods sectors for a selection of the EU’s

between the EU and Turkey are therefore fulfilled in terms

future trading partners.

both of internal and of external relations.
From these simple statistics, it is already apparent that
Furthermore, it is apparent that the USA’s external tariffs

the successful conclusion of the free trade agreements

for industrial goods are in some cases considerably lower

under negotiation between the EU and the six regions could

than in the EU and Turkey. At the same time there are pro-bring about substantial negative consequences for Turkey,

ducts with higher tariffs.

which are attributable to the problem of asymmetry previously discussed. If, for example, the EU reduces tariffs inIn the agricultural sector, the three countries’ external

the motor-vehicle sector from 7 percent to 0 percent for

tariffs vary greatly for different products. As an emerging

the USA within the framework of the TTIP, Turkey would

nation, Turkey has the highest tariffs for all goods.

have to follow the agreement. At the same time, however,
Turkish exports would continue to be faced with Ameri-

Figure 23 shows the average tariff of the EU and Turkey for

can tariffs in the same sector, which amount to 2 percent.

all goods, and also lists the corresponding tariff for the EU’s

By extrapolating this scenario to other possible partner

new western trading partners. The same tariff statistics arecountries and sectors, the extent of the tariff imbalance

indicated in Figure 24 for some of the EU’s trading partners,– which initially appears to be minimal – becomes clear.

which are all emerging nations. It is clear from the figures

In the case of India, for example, Turkish automobile-partthat there is considerable potential to reduce trading costs

exporters will continue to be faced with tariffs of 14 per-by eliminating tariffs. As expected, the existing externalcent, while tariff barriers will have been removed on thetariffs in the emerging nations are higher on average.

home market.

32

Turkey’s EU integration at a crossroads

Figure 23: Average tariffs in the EU’s future western partner countries
MFN 2013 – Simple average
EU

TurkeyJapan

USA

CanadaMFN 2013 – Weighted average
3.42
2.72

4.09
3.14

16.66

35.51
3.63

3.44

3.57
2.24

2.67
1.21
3.76
1.86

4.98
2.60

11.53

10.95
2.31

2.75

n Primary sector n Secondary sector
Source: WITS – TRAINS Tariff Data and author’s own illustration

Figure 24: Average tariffs in the EU’s future FTAs (emerging nations)
MFN 2013 – Simple average

MFN 2013 – Weighted average

8.53

Argentina

2.85
12.76

12.42

8.47

Brazil

6.39
13.15

11.07

Indonesia

4.84
8,53

4.20
4.77

Malaysia

4.35
7.00

3.61
3.92

Myanmar

6.05
5.11

14.27
4.88
9.38
8,53

Paraguay

Philippines

12.69
8,53

11.55

10.53

10.01

Thailand

Uruguay

7.18
25.74

India

5.25

8.83
10.56

11.32
8.46

16.32
13.46

Venezuela

Vietnam

18.00

10.00

23.18
10.69

13.08

7.75

9.92

4.95
30.27

9.13

20.24
4.74

n Primary sector n Secondary sector
Source: WITS – TRAINS Tariff Data and author’s own illustration

33

Turkey’s EU integration at a crossroads

Table 6: Weighted average MFN tariffs for selected countries (in percent)
MFN tariff vs. WTO (2013)
GTAP sector

Turkey

India

Japan

USA

0.00

Canada1

Paddy rice

7.70

31.59

3

Grains nec

0.00

121.54

49.70

0.52

0.01

0.00

4

Vegetables, fruit, nuts

5.55

28.11

29.24

5.86

4.06

2.66

5

Oilseed

0.00

19.14

26.23

0.00

0.00

0.00

6

Sugar cane, sugar beet

5.10

19.30

30.00

0.00

0.00

0.00

7

Plant-based fibers

0.00

0.00

0.79

0.00

0.00

0.00

8

Agricultural crops nec

0.97

17.31

54.95

0.61

7.96

1.85

9

Cattle, sheep, goats, horses

0.00

34.11

30.00

0.00

0.00

0.00

10

Animal products nec

2.97

1.50

8.97

4.10

0.41

5.69

12

Wool, silkworm cocoons

0.00

0.00

5.00

0.00

0.05

0.00

13

Forestry

0.00

0.00

5.75

0.27

0.33

0.00

14

Fishing

9.93

7.00

10.16

2.08

0.07

1.95

15

Coal

0.00

0.00

2.35

0.01

0.00

0.00

16

Oil

0.00

0.00

0.00

0.00

0.00

17

Gas

0.00

5.00

0.00

0.00

0.00

18

Minerals nec

0.01

0.71

7.25

0.00

0.04

0.04

19

Meat: cattle, sheep, goats, horses

3.25

120.27

18.68

33.16

10.01

11.43

20

Meat products nec

8.97

12.04

40.17

6.02

1.33

55.73

21

Plant-based oils and fats

2.02

16.28

59.96

1.11

3.31

7.39

22

Dairy products

7.06

149.44

27.75

17.26

9.75

177.9823

Processed rice

45.00

70.00

0.00

11.20

0.00

24

Sugar

8.00

61.90

55.29

1.00

4.21

4.50

25

Food products nec

12.59

15.06

39.38

10.95

4.89

14.83

26

Beverages and tobacco

5.15

12.02

100.18

0.97

2.21

5.56

27

Textiles

9.31

5.92

10.06

7.39

9.42

10.92

28

Clothing

11.28

10.76

9.79

9.30

12.05

16.08

29

Leather products

8.85

9.36

10.00

12.02

10.81

10.99

30

Wood products

1.25

2.58

9.85

2.10

0.50

3.08

31

Paper products, publishing

0.03

0.04

8.59

0.00

0.00

0.00

32

Petroleum, coal products

1.46

2.18

5.08

0.90

5.55

1.05

33

Chemicals, rubber, plastic products

3.11

4.31

7.47

1.30

1.87

1.99

34

Mineral products nec

4.18

4.19

8.71

1.03

3.93

1.86

35

Ferrous metals

0.68

4.60

6.28

0.35

0.35

0.02

36

Metals nec

1.58

0.47

9.08

0.44

1.67

0.00

37

Metal products

2.62

2.83

9.87

0.73

2.07

2.00

38

Automobile vehicles and parts

7.38

7.63

13.61

0.00

1.81

4.62

39

Transport equipment nec

1.69

2.36

6.54

0.00

0.42

2.09

40

Electronic equipment

0.86

1.82

1.75

0.00

0.29

0.39

41

Machinery and equipment nec

1.74

1.80

6.98

0.05

1.04

0.64

42

Manufacturing nec

1.81

2.67

9.99

1.98

1.48

3.17

Source: WITS – TRAINS Tariff Data

34

Weighted average
EU

0.00

Turkey’s EU integration at a crossroads

3.6 Rules of origin

If country C, for example, wishes to export goods to country
A, it incurs a tariff of 30 percent. Countries A and B, how-

One tool that is of importance in the international trade

ever, have signed a free trade agreement, meaning thatof goods is the so-called certificate of origin, also known

country C could consider exporting its product first to coun-as rules of origin. These play an important role in free trade

try B and subsequently delivering it to country A. Withoutagreements and can be contractually structured in various

the rules of origin, the tariff would be only 5 percent.

different ways. Basically, these rules establish the conditions under which the origin of a delivered good is allocatedHowever, the rules of origin require that, for the tariff-to the exporting country. This is determined by defined

free movement of goods to take place within the free traderequirements which are to be fulfilled when processing orzone, these must be products originating in one of the twofurther processing materials that do not originate in thecontracting parties. Country C would not obtain a certif-

exporting country. There are different accumulation rules

icate of origin for imports to country B. Therefore coun-

which are not discussed here.

try C must first pay a tariff of 5 percent in country B andthen a further 30 percent for imports to country A. Only ifThis rules-of-origin system within a free trade agreement

the product undergoes sufficient processing or further pro-aims to prevent tariffs from being circumvented. The fol-cessing in country B can it be assigned an originating statuslowing abstract example briefly illustrates the underly-of country B and the product delivered to country A free ofing problem. If two contracting parties (A and B) in a freetariffs. Very detailed rules are established in the free trade

trade agreement have different external tariffs for theagreements that define the upper limit for added value,same product – which can often be the case – a third coun-for example in country C (third countries). Semi-finishedtry (party C, which is not a member of the free trade agree-

products that are further exported under the terms ofment between A and B) has the option of importing goods

the free trade agreement should not account for more thaninto the free trade area between A and B via the country

30 percent of the ex-factory cost, for example.

with the lower external tariff.
In the case of a customs union, there is no need for rules
To prevent the circumvention of tariffs, more detailedof origin since the external tariff of all contracting parties

provisions are required regarding the acquisition of origi-

must be harmonized. As a member of the European Cus-

nating status within the free trade area for semi-finishedtoms Union, Turkey is required to apply the same exter-

products that do not have a so-called originating status in

nal tariff as the European Union and to remove any tariffs

the free trade area.

within the customs union.

Figure 25: Tariff circumvention by third countries in free trade agreements

External tariff:
30 %A

Contractual
partner

External tariff:
5%

B

C

Source: ifo Institut and author’s own illustration

35

Turkey’s EU integration at a crossroads

An important advantage of the customs union compared

relocation of a production site implies new costs. But, if thewith a free trade agreement becomes evident when consid-

volume of trade is sufficiently large over a period of several

ering rules of origin.

years, such a relocation of the production site may be profitable.

If a country has comparative advantages in labor costs,
for example, then it is often lucrative for companies fromThe following is a short example with figures:

partner countries to outsource production standards forintermediate goods to the more cost-effective country.
Chapter 3.4 contains descriptive statistics showing that
German companies are increasingly injecting foreign
direct investment into Turkey. The production of intermediate goods in Turkey and their export to the EU accounts
for a large proportion of total exports in some sectors.
Therefore it was, and still is, lucrative for many European
companies to build production sites in Turkey. In addition
to the cost advantages, however, rules of origin also play a

Imaginary Example
Year

Location

Export volume
to the USA

Incoming tariff

2016

Turkey€ 10 M€1M

2017 TTIP

Turkey€ 10 M€1M

Czech
Republic€ 10 M€0

Source: ifo Institut and author’s own illustrationrole here.
In the following paragraph an example illustrates theIf export volumes to the USA remain the same, the reloca-

consequences which may be experienced by Turkey if thetion of the production site to the Czech Republic results in

TTIP enters into force and, at the same time, Turkey does

tariff savings of EUR 1 million per year. If it is not clear thatnot conclude its own free trade agreement with the USA.

the import tariffs incurred by the USA will also be removed– as a result of a free trade agreement between the USA andAs a result of the establishment of a customs union

Turkey, for example – then it can be worthwhile construct-

between the EU and Turkey, German company A built a

ing the production site in the Czech Republic.

production site in Turkey. Its products (e.g. intermediate
goods for automobiles) are delivered both to the EU and

Furthermore, the transformation of the existing customs

to the USA. Turkey offers company A many advantages

agreement between the EU and Turkey is not a cost-free

as a production location, meaning that the company can

option in view of the rules of origin. European companies

produce goods there in more favorable conditions than itthat produce intermediate goods in Turkey for their domes-

could in the European Union. Now the TTIP enters into thetic locations would suddenly be confronted with the needexample. It is assumed that the tariffs between the USA

to present certificates of origin. In addition to the admin-and the EU will be removed for Company A’s goods. Fur-istrative expense, limits for goods that can be imported

thermore, the assumption is made that Turkey cannot

tariff-free are also implicitly defined by the previously

conclude its own free trade agreement with the USA.

described added-value limits. This example illustrates thepotential consequences of the TTIP for Turkey if the coun-

Due to the problem of asymmetry in the EU-Turkey

try cannot conclude a free trade agreement with the USA

Customs Union, German companies have the following

or the problem of asymmetry continues in the long term.

decision-making problem in the medium term:

Moreover, it is clear that the flawed contractual design of
the EU-Turkey customs agreement causes friction for Euro-

Company A can save costs when exporting goods to thepean producers in Turkey, since the rules of origin could

USA – by not paying tariffs – if it relocates its production

suddenly appear in the customs union too. Transformingsite to the EU, e.g. the Czech Republic. Furthermore, there

the customs agreement into a free trade agreement also

is a risk of additional costs being incurred for exports tobrings about disadvantages.

the USA from Germany if the intermediate goods producedin Turkey are integrated into finished products that are
intended for the US market. Tariffs are payable if the share

3.7 Non-tariff trade barriersof added value is too high.
Alongside higher external tariffs, non-tariff barriers
Alternatively, the German company can relocate its pro-

(NTBs) also provide scope for national regulations to pro-duction to an EU country due to the additional costs. The

tect the domestic economy. NTBs offer a large number of36

Turkey’s EU integration at a crossroads

Figure 26: Non-tariff trade measures 1995-2015, Turkey
185
173

100

70

1

1

3

3

initiatedin force
sanitary and phytosanitary measures1
in force

initiated
antidumping

2

2

3

in force
initiatedfurther measuresn number of (unknown abbreviation) products affected n number of measures
Source: WTO, Integrated Trade Intelligence Portal (I-TIP) and author’s own illustration

possibilities to shape this scope for regulations. Many NTBs
are often driven by national motives and are used to reachIntermediate findings:

political objectives. This generally occurs in the context ofglobalization, which raises concerns about health, safety,

By signing the Ankara Agreement, Turkey aligned its

environmental quality and consumer protection. Protect-external tariffs in industrial sectors for third countries withing the domestic economy by means of NTBs gives rise to

those of the EU. In return there are no tariffs between the

new challenges for international cooperation, which ham-

EU and Turkey for trade in industrial goods. In the agricul-

per international integration.

tural sector, there are considerably higher tariffs in Turkey
than the EU or even the USA. At the same time, for mostFigure 26 shows the number of NTBs in Turkey that wereagricultural sectors the EU has no bilateral trade tariffs for

implemented or initiated between 1995 and 2015. In addi-

Turkish goods, as long as defined quotas are not exceeded.

tion, protective tariff procedures (anti-dumping) are listed.

External tariffs will continue to exist for Turkey for the

In total, Turkey initiated 191 measures, affecting 105 prod-

EU’s future free-trade partners – albeit at a lower level –ucts.

due to the problem of asymmetry. For example, trade
tariffs for motor vehicles will be abolished in the customs

In particular, Turkey has focused on anti-dumping andunion after the TTIP, while Turkish companies will still have

has initiated only a few sanitary and phytosanitary meas-

to face additional costs amounting to 2 percent. In the caseures. The latter category includes, for example, the meas-of India, Turkish manufacturers of automobile parts will

ure initiated on 4 June 2014 regarding the Japanese chest-

be further hit with tariff costs of 14 percent. Moreover, thenut gall wasp, which was discovered in Turkey’s Yalova

rules of origin will seriously threaten production networks

province. Turkey had three specific sanitary and phytosan-

between Turkey and the EU. Furthermore, investment initary procedures by 2015, all of which concern the agricul-

Turkey for the production of intermediate goods is becom-tural sector: import bans on farm animals from Hungary

ing unattractive from the EU’s perspective, due to the prob-

and the USA, pet food from Hungary, and bananas fromlem of asymmetry.

Ecuador.

37

Turkey’s EU integration at a crossroads

4. The ifo simulation modeland necessary data

In order to carry out an analysis of the following traderium conditions. Two estimated parameters are of par-policy scenarios, the ifo simulation model is used. It is

ticular interest here. On the one hand the elasticity withbased on the trade model of Aichele et al. (2014), which iswhich tariff modifications affect trade flows in the sectors

described in brief below. A detailed description of the the-examined and, furthermore, the effect of non-tariff tradeoretical and empirical model can be found in the corre-

restrictions, which also affect the respective trade flows.

sponding article.

Here, a distinction is made between agreements of different levels of integration, which are based on data from Dür

As has been outlined, the trade agreement between the

et al. (2014). Moreover, the effects of a customs union and

EU and Turkey is, in its current form, both a problem-the establishment of a single market (EEA, EU) are empiri-

atic and extremely unique agreement. There are, there-

cally estimated and taken into consideration. This distinc-fore, particular challenges when it comes to carrying out ation between the levels of integration for trade agreements

structural assessment using parameters derived from data.

makes it possible to quantify the welfare and trade effects

The empirical identification and quantification of different

for various levels of trade liberalization in the following

integration policies, from which the simulation parameters

trade-policy scenarios.

are derived, are also briefly described.
The trade-policy scenarios, which are described in detailbelow and then assessed quantitatively, are derived from

4.1 ifo simulation model: Methodology

the following scenario: if the EU were to conclude new
free trade agreements with third countries – that is to say,

The simulation model developed by the ifo Institute ena-

remove tariffs and non-tariff trade barriers – what align-

bles the quantification of disaggregated trade and output

ments would be made and to what extent would there theneffects. It is a general-equilibrium model for international

be changes to the existing economic parameters of the

trade, in which 140 countries in 57 goods and service sectors

countries considered? In addition, the effects that would

can currently conduct trade with each other, and in which

result from expanding the EU-Turkey customs union to

the trade flows are reduced by tariffs and NTBs. In addition,

include the primary and tertiary sectors are considered.

medium-term welfare effects can be calculated. The model

For these theoretical new situations, the possible tradepresents international added-value chains and sectoral

flows, production structures and real global income aredetails in such a way that the intended alignments in vari-calculated based on current real data. As far as the reduc-ous trade policies between the EU and Turkey can be appro-tion of non-tariff trade barriers is concerned, these will

priately simulated. The basis for this multi-sector model

be derived empirically from existing liberalization agree-

was developed by Caliendo and Parro (2015). It builds on thements from the past. Section 4.3 briefly presents the meth-pioneering work of Eaton and Kortum (2002). The model isodology and the corresponding results.

thus anchored in the New Quantitative Trade Theory.8
The level effects on the economy resulting from the simThe model is parameterized using econometric equations

ulations represent a new equilibrium and are of a statisti-

which are derived from the model’s theoretical equilib-

cal nature. The base year that is taken as the starting pointis 2011, since there are no more current data available. Pos-

838

See Costinot and Rodríguez-Clare (2015) for a description of thesemodel types.

sible dynamic alignments at a micro-level, such as company innovations or new investments, for example, are notTurkey’s EU integration at a crossroads

taken into consideration in this model. With this in mind,

the one hand, various integration alignments between

the effects presented are conservative results, which are

Turkey and the EU are politically conceivable. Furthermore,

more representative of the lower end of the possible align-

various economic agreements may also be made between

ments. The results presented show a new economic equi-the third countries listed and Turkey. The following sce-

librium that could be achieved following a real alignment

narios, which are possible in theory and increasingly dis-period of 10 to 12 years.

cussed in political debates, are analyzed.

4.2 Scenarios and EU free trade agreements
taken into consideration

First scenario: EU-Turkey Customs Union remains unchanged
The EU-Turkey Customs Union remains unchanged, while

As described above, the asymmetrical customs agreement

the EU concludes free trade agreements with the six coun-

between the EU and Turkey has possible economic reper-

tries or regions listed. Turkish membership of the customs

cussions if the EU concludes new free trade agreements

union is restricted to the industrial goods sector.

with third countries. The following free trade agreements
currently being negotiated between the EU and third countries are considered for the analysis scenarios, which will
be presented in more detail later on:A) The economic effects of the TTIP, CETA, Japan and otherfree trade agreements on the EU and Turkey are shown in
the event of complete tariff elimination.
B) The effects of the TTIP, CETA, Japan and other free trade

1. TTIP (Transatlantic Trade and Investment Partnership)

agreements on the EU and Turkey in the event of thewith the USA. This is a comprehensive free trade agree-

elimination of tariffs and non-tariff barriers (NTBs).

ment.
2. EU-Japan. This is a comprehensive free trade agreement.

Second scenario: The EU-Turkey Customs Union is deepened

3. CETA (Comprehensive Economic and Trade Agreement).
This is a comprehensive free trade agreement withThe EU-Turkey Customs Union is deepened. Here the EU’s

Canada.

new free trade agreements are not considered for the time

4. EU-India. This is a basic free trade agreement.

being.

5. MERCOSUR (Southern Common Market). This is a basic
free trade agreement with the following partner countries: Argentina, Brazil, Paraguay, Uruguay and Venezuela.
6. ASEAN (Association of Southeast Asian Nations). This

A) Partial deepening: Agricultural sector is included in thecustoms unionB) Partial deepening: Service sector is included in the customs union

is a basic free trade agreement with the following partner

C) Comprehensive deepening of the customs union: agri-

countries: Brunei, Cambodia, Indonesia, Laos, Malaysia,

cultural and service sectors are included in the customs

Myanmar, the Philippines, Singapore, Thailand andunion

Vietnam.
7. All of the above FTAs are considered together.

Third scenario: The EU-Turkey Customs Union is deepened
as in scenario 2 C). In addition, the EU’s new free trade

For the first three agreements, the assumption is madeagreements are taken into considerationthat they are so-called comprehensive free trade agreements. For the other agreements, which are primarily

3.1 Turkey is not part of the EU’s six FTAs but must openwith emerging and developing nations, it is assumed thatits market to the EU’s new trading partners in all sectors

they are less comprehensive (basic) agreements, since a(problem of asymmetry for Turkey).

comprehensive agreement with the EU seems improbable because of the level of economic development in theseA) The EU’s new free trade agreements take into consid-

countries at the present moment. The classification of theeration tariffs and non-tariff barriers. See above for theagreements comes from Dür et al. (2014).

depth of the FTA.

As shown in chapter 2.4, the EU and Turkey have a number

3.2 In the following sub-scenarios, the assumption is madeof different possible courses of action that they could takethat Turkey follows suit with respect to the EU’s new freein view of the EU’s forthcoming free trade agreements. On

trade agreements.

39

Turkey’s EU integration at a crossroads

A) The assumption is made that Turkey concludes its own

Croatia became the newest EU member state. This there-

independent free trade agreements (basic ones only)

fore means that future free trade agreements between thewith the USA, Canada, Japan, India, MERCOSUR and

EU and third countries are carried out in a world in which

ASEAN at the same time as deepening the European

Croatia is already an EU member state. However, the GTAP9

Customs Union.

data which are used in the model refer to the base year of2011 – a time at which Croatia was not yet part of the EU.

In this scenario, Turkey’s agreements with third coun-

The effects of Croatia’s accession to the EU are therefore

tries sometimes have different levels of liberalization fromsimulated initially.9 The free-trade scenarios discussed

those of the EU. The objective of this scenario is to illus-

above are simulated on the basis of data that identify Croa-

trate that Turkey has a worse negotiating position vis-à-vis

tia as an EU member state. This also implies the expansion

third countries.

of relations between Croatia and Turkey from a basic free
trade agreement to a customs union in the industrial sector.

B) The assumption is made that, by making the EU-Turkey
Customs Union fully comprehensive, Turkey concludes
equivalent FTAs with the third countries and regions
listed (open free trade agreement between the EU and

4.3 Empirical quantification of various integration
policies

third countries).
There are particular challenges when it comes to a struc-

Fourth scenario: The EU-Turkey Customs Union is transformed

tural estimation using parameters derived from data. As

into a free trade agreement

well as identifying possible average trading effects whichwere observed in the past following a basic or a compre-

A1) The EU’s new free trade agreements are initially nothensive free trade agreement, this study requires thetaken into consideration. This is a comprehensive free tradequantification of the effect of a customs union. The clas-

agreement between the EU and Turkey in the industrial

sification of bilateral free trade agreements according

goods sector (agricultural and services sectors excluded).

to their level of depth is done on the basis of Dür’s points
system (2014). This points system is available for freeA2) The EU’s new free trade agreements are initially nottrade agreements from 1949 to 2015. To establish thetaken into consideration. This is a comprehensive freeaverage effects of a customs union, the following cus-trade agreement between the EU and Turkey in the indus-

toms-union agreements already in existence are used:

trial goods sector and a basic free trade agreement in the
agricultural and service sectors.

A) Andean Community,B) Eurasian Customs Union,

A3) The EU’s new free trade agreements are initially notC) MERCOSUR,

taken into consideration. This is a comprehensive freeD) West African Economic and Monetary Union.

trade agreement between the EU and Turkey in the industrial goods sector and also a comprehensive free trade

The selection was made based on the economic parametersagreement in the agricultural and service sectors.

of the customs unions and their sufficient temporal variation with regard to foundation and change of members.

Based on A2), the following sub-scenarios are taken into
consideration:B) Consideration of the EU free trade agreements (TTIP,
CETA, Japan, etc.) but Turkey does not follow suit withrespect to the EU’s free trade agreements.
C) Consideration of the EU’s new free trade agreements andTurkey signs agreements with the same regions. However, the agreements are less comprehensive (Turkey has
exclusively basic agreements with the six regions).
For all simulations, there are particular features of
the EU that must be considered as follows. In 2013,40

9For Croatia the model predicts a rise in real income of 13.2 percent
as a result of the country’s EU accession. The effect on the EU, however, is not significant: on an average across the EU, real income increases by 0.08 percent. Croatia’s neighbors, such as Slovenia (+1.6
percent) and Hungary (+0.3 percent) benefit the most. The “sugar”,“ferrous metal”, “sugar cane and sugar beet”, “other metals”, “textiles”, “leather products”, and “company services” sectors in Croatia particularly benefit from EU membership. On the other hand, some
agricultural sectors, such as “paddy rice”, “dairy products”, “otherfoods” as well as oil, insurance and financial services, are shrinking.
Overall, Croatia’s trade with the EU is increasing. Exports are risingby 170 percent and imports by roughly 150 percent. In 2011, the EU
was Croatia’s largest trade partner. Approximately 64 percent of thecountry’s imports came from other EU countries, and about 70 percent
of exports went to the EU. This share continued to rise after EU entry,
by about 15 percentage points for imports and 20 percentage points forexports.

Turkey’s EU integration at a crossroads

In order to estimate the effects of free trade agreements

sents the trade barriers between the two countries.

and customs unions, bilateral import data on goods tradet stands for time variation. In the empirical specification,from the International Monetary Fund’s (IMF) Direction

the trade costs dij will be a function of the distance andof Trade database are used. These data cover the period

dummy variables for a common boundary, common lan-from 1960 to 2014 and concern the bilateral trade of 184

guage and of the membership of a free trade agreement.

countries. Sectoral estimations are calculated based on
UN Comtrade data. These data cover the period between

Using the gravity model at sectoral level, the average

1963 and 2014. For the most recent years, this dataset iseffects of different integration policies are estimated:

supplemented by CEPII bilateral trade data. Sectoral estimations are conducted in the sector categories according
to GTAP9. The effects in the tertiary sector are estimatedln xijst = FTA(comprehensive)ijst + FTA(simple)ijst +customs unionijst + EUijst

using the comprehensive GTAP9 dataset. This dataset covers 140 regions, 57 sectors, and is available for the years

In addition, the panel estimations take into consideration

2004, 2007, and 2011.

target-country year, origin-country year and country-pair
fixed effects. The average effects for full membership of

For an empirical evaluation of the different levels of free

the EU are also estimated for the sake of completeness. The

trade agreements and the customs union, a gravity equa-

wider European Economic Area (EU), which comprises bothtion is applied. In its simplest form, this equation explains

the EU and the additional members of the EEA (European

bilateral trade using the following relationship:

Economic Area), is defined from the entry into force of theTreaty of Maastricht (1993).

ln x ijt = − ln GDPWt + ln GDPit + ln GDPjt − ln dijt;
Figure 27 illustrates the average effects for the individual
whereby xij represents the trade flows between the coun-integration policies under consideration. According to thetries i and j, GDPW refers to global income, GDPi and GDPj

figure, the increasing deepening of economic integration isrefer to each country’s gross domestic product and dij repre-

on average accompanied by a steady rise in trade in the par-Figure 27: Average effects of various integration policies

2

1

0

–1

–2
basic FTA

comprehensive FTA

customs unionEU

Source: ifo Institut and author’s own illustration

41

Turkey’s EU integration at a crossroads

Figure 28: Average trading effects of integration policies (industrial goods)

0.21
textiles

0.59
0.89
0.14

clothes

0.32
1.23
0.09

leather

0.52
0.92
0.13

wood

0.53
0.59
0.15

paper, publishing

0.34
0.63
0.26

petroleum, coal products

0.37
0.24
0.25

chemicals, rubber, plastics

0.46
0.81
0.04

mineral products nec

0.35
0.48
0.07

ferrous metals

0.37
0.95
0.27

metals nec

0.43
1.02
0.16

metal products

0.36
0.50
0.18

automobile vehicles and parts

0.48
0.93
0.18

transport equipment

0.30
0.58
0.14

electronic equipment

0.28
0.97
0.15

machinery and equipment nec

0.23
0.58
0.12

manufacturing nec

0.33
0.47

n basic n comprehensive n customs union
Source: ifo Institut and author’s own illustration

42

Turkey’s EU integration at a crossroads

ticipating partner countries. This empirical result therefore
corresponds to the theoretical model discussed in Chapter
2.2. At the same time, it is clear from the figure that, within
the individual integration options, the trading effects varyconsiderably. It is therefore possible that countries which
decide upon a comprehensive free trade agreement canachieve more positive trading effects and thus higher welfare effects than with the average customs union agreement.
In Turkey’s case the result is of particular importance,
especially for the analysis of policy options. Due to the
problem of asymmetry outlined, it is feasible that Turkey
could benefit more from a comprehensive free trade agreement with the EU than it does from its current incomplete
membership of the European Customs Union.
Figure 28 shows the estimators used below for the three
integration-policy options (basic FTA, comprehensive FTA,
customs union) for various sectors in the field of industrial goods. The resulting order of average trading effects
is also empirically confirmed at this disaggregated level.
The average estimator for a comprehensive FTA in the
motor-vehicle sector is 0.48; this is around half the amountfor the corresponding customs-union effect, which is 0.93.
In the event of an FTA, trade increases by approximately
62 percent on average, whereas it would increase by 150 percent with the alternative of initiating a customs union. The
corresponding estimators are also listed for the agricultural and service sectors in the appendix.

Intermediate findings:
Empirical estimates confirm that increasing intensificationof economic integration between two countries results inhigher average growth in trade. However, estimates also
show that some comprehensive free trade agreements
can lead to higher bilateral trade flows than, for example,
a customs union agreement. In Turkey’s case, the question
arises in theory of whether a rollback of the customs union
to a free trade agreement represents such a preferable
scenario.

43Turkey’s EU integration at a crossroads

5. Simulation results: Integration scenarios
for the EU and Turkey

In order to investigate possible changes to the status quo ofand third countries are determined in the event of the out-

relations between the EU and Turkey, as well as the possible

right elimination of tariffs.

establishment of new relations with other countries, various
scenarios have been simulated. The central findings are dis-

Table 7 shows that Turkey will not experience a substan-

played in tables below. The first four rows represent the sim-tial expansion of its foreign trade. The outright elimina-

ulated effects on GDP, wages, and welfare in Turkey. Thesetion of tariffs between the European Customs Union andare followed by changes in trade flows between Turkey andthe respective free-trade partners does not lead to major

the EU, the rest of the world, as well as the respective FTA

changes in bilateral trade between Turkey and EU coun-partners. Turkey is always the corresponding nation here.

tries. Whereas in the overall scenario (last column: Com-In Table 35 of the appendix, the basic economic data of thebined) the simulated Turkish exports to the EU increase

underlying dataset are listed for the countries in question.

slightly, Turkish imports from the EU fall more sharply inpercentage terms.

5.1 Effects of the EU’s new free trade agreements
on Turkey (status quo)

Turkish imports from the respective FTA partner countries increase due to the now asymmetrical external tariffs.
Although the MFN external tariffs of the respective FTA
partner countries continue to apply for goods from Turkey,
the tariffs applicable for exports from these countries to

Scenario 1A) Outright elimination of tariffs

Turkey are eliminated.
In scenario 1A), the status quo between the EU and Turkey
forms the basis. The effects resulting from the introduc-

In contrast to this, there is a decrease in the volume

tion of the selected free trade agreements between the EU

of Turkish exports to these countries or a considera-

Table 7: Findings for scenario 1A)
Scenario 1A)

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)∆GDP (USD billions)– 0.07– 0.05– 0.03– 0.02– 0.02– 0.06– 0.22∆GDP per capita (USD)– 0.86– 0.67– 0.35– 0.24– 0.31– 0.73– 2.79∆Wages (%)

0.02

0.01

0.00

0.00

0.00

0.00

0.03

∆Welfare (%)– 0.01– 0.01

0.00

0.00

0.00

– 0.01– 0.03∆Exports TUR – EU28 (%)– 0.03– 0.01

0.11

0.08

0.33

0.12

0.63

∆Exports TUR – RoW (%)

0.23

0.22

– 0.04– 0.14– 0.170.12

0.21∆Exports TUR – FTA (%)

0.43– 2.41– 0.78– 5.65– 5.530.25– 0.82∆Imports TUR – EU28 (%)– 0.42– 0.44– 0.08– 0.20– 0.17– 0.29– 1.60∆Imports TUR – RoW (%)

0.23

0.30

0.08

0.10

0.18

0.26

1.16

∆Imports TUR – FTA (%)

5.17

13.63

3.03

1.43

3.36

8.89

5.73

Source: author’s own calculations, RoW = all countries in the world except EU28

44

Turkey’s EU integration at a crossroads

bly smaller rise in exports than in imports. In connection

comprehensive unobserved alignments (structure, capital,

with the decrease in imports to Turkey from the EU, there

innovation alignments) can be accounted for. By retain-

appear to be possible trade-diversion effects. In the caseing the disaggregated data structure one does obtainof the TTIP, for example, the import of goods from the USA

more detailed information on sector-specific alignments,

becomes more attractive relative to the EU due to the elim-

however further-reaching alignments are foregone as aination of the external tariff for Turkey.

result.

In addition, the simulation indicates an expected reduction

Table 8b) summarizes the main economic results for Ger-in Turkish GDP in all of the seven scenarios. If the EU signs

many which can result after a successful implementation

all six free trade agreements, this would lead to a fall inof the considered free trade agreements. Accordingly, with

Turkish GDP amounting to USD 220 million, which equates

the TTIP Germany can expect a welfare gain of 0.35 percent.

to a reduction in Turkish GDP per capita in the magnitude

Across all considered FTAs Germany can expect a positiveof USD 2.79. However, there is an expectation that Turkish

welfare effect. An equivalent picture emerges in Table 8c)

wages would increase in all of the scenarios.

for the EU. Strikingly, all FTAs come along both in Germany
and in the EU with trade-diversion effects. Trade with Turkey is reduced both in exports as well as in imports.

Scenario 1B) Elimination of tariffs andWhile the aggregated effects of the EU’s new free trade

non-tariff barriers

agreements which have been outlined do not appear to
If scenario 1A) is now expanded to include the elimination

be particularly large, it becomes clear when taking intoof non-tariff barriers (NTBs), then a drop in the volume

consideration the sectoral effects that very large andof Turkish imports from the EU is observed across all ofsometimes opposing alignments take place that are not

the scenarios. In most of the scenarios, a fall in the volume

visible in the aggregate.

of Turkish exports to the EU is also expected.
Figure 29 illustrates, for example, the expected sectoral
As a result of the EU’s entry into the markets of the respec-changes in terms of Turkey’s exports to the EU after thetive FTA partner countries and the asymmetrical treatment

TTIP and an FTA with MERCOSUR. It becomes clear, forof Turkey (problem of asymmetry in the customs union),example, that in the case of the TTIP, a very strong decline

Turkey loses its market share in these countries. This canin Turkish exports will occur in those sectors that until10

be seen in the fall in Turkish exports to these countries.

now have had high export volumes to the EU. In both

Imports from these countries, however, are expanding –the metal and transport-equipment industries, Turkish

sometimes considerably – due to the asymmetrical removal

exports to the EU will fall by almost 2.5 percent. A signif-of tariffs and barriers vis-à-vis Turkey. In the event of a

icant reason for these declines is to be found in the asym-

free trade agreement between the EU and Japan, for exam-

metrical customs agreement between the EU and Turkey.

ple, there would be a 2.82 percent reduction in the volume

On the one hand competition on the EU market will inten-

of Turkish exports to Japan but a considerable increase insify as a result of the TTIP, since US firms will experience

the volume of Turkish imports from Japan amounting toconsiderable cost easing. Moreover, Turkish companies

13.05 percent.

that supply intermediate goods to the EU may not benefit
from the increased volume of finished products exported

Compared with the outright elimination of tariffs infrom the EU to the USA, since goods with a large share of

scenario 1A), the reduction in Turkish GDP and welfare is

Turkish added value will be disadvantaged as a result ofsmaller here. In the case of the TTIP and the CETA, there

the rules of origin. Furthermore, Figure 29 shows that theis even the possibility of a welfare gain for Turkey. The

effects occurring in the case of the TTIP are not neces-aggregated welfare effects derived here are considera-sarily to be expected for Turkish companies for all of the

bly less significant compared with Felbermayr et al. (2015),

EU’s FTAs. Since MERCOSUR states generally do not havesince an alignment in the industrial structure is initiallystrong export industries, an FTA with the EU would not

excluded in the medium term. In the aggregated estimate

lead to an intensification of competition on the EU mar-made by Felbermayr et al. (2015), substantially more

ket to the same extent as the TTIP. Turkish companies
may, by contrast, even increase their sales in the event of

10 Table 36 in the appendix lists the changes in Turkish exports to selected countries, while Table 37 shows the changes in Turkish imports.

such an agreement, since EU budgets can make savings intheir revenue as a result of the FTA and increase their con-45

Turkey’s EU integration at a crossroads

Table 8: Findings for scenario 1B)a) Results for Turkey
Scenario 1B) TUR

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)∆GDP (USD billions)

0.04

TTIP

– 0.030.01– 0.03– 0.02– 0.07– 0.08∆GDP per capita (USD)

0.51– 0.360.09– 0.33– 0.22– 0.89– 1.08∆Wages (%)

0.02

0.01

0.00

– 0.01

0.01

0.00

0.02

∆Welfare (%)

0.01

0.00

0.00

0.00

0.00

– 0.01– 0.01∆Exports TUR – EU28 (%)-0.27– 0.500.10– 0.110.43– 0.19– 0.51∆Exports TUR – RoW (%)

-0.15

0.23

– 0.10– 0.14– 0.280.15– 0.29∆Exports TUR – FTA (%)-1.28– 2.82– 1.20– 7.04– 8.05– 0.72– 2.56∆Imports TUR – EU28 (%)-0.77– 0.59– 0.14– 0.24– 0.26– 0.33– 2.27∆Imports TUR – RoW (%)

0.10

0.12

0.08

0.02

0.23

0.13

0.66

∆Imports TUR – FTA (%)

5.05

13.05

2.72

0.86

3.86

8.42

5.17

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)b) Results for Germany
Scenario 1B) DEU∆GDP (USD billions)

11,78

3,24

1,60

2,19

3,75

3,58

25,88

∆GDP per capita (USD)

144,16

39,69

19,63

26,83

45,93

43,85

316,83

0,35

0,10

0,05

0,07

0,11

0,11

0,77

∆Exports DEU – TUR (%)-0,69– 0,53– 0,15– 0,34– 0,40– 0,40– 2,45∆Exports DEU – FTA (%)

43,06

49,45

54,69

72,46

79,55

47,63

48,53

∆Imports DEU – TUR (%)-0,46– 0,530,18– 0,07

0,58– 0,30– 0,58∆Imports DEU – FTA (%)

46,59

51,40

47,96

40,22

34,79

31,71

43,35

Scenario 1B) EU28

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1-6)∆GDP (USD billions)

51,51

15,12

8,76

8,72

12,21

13,96

109,04∆Welfare (%)

0,32

0,09

0,05

0,05

0,08

0,09

0,67

∆Exports EU28 – TUR (%)-0,77– 0,59– 0,14– 0,24– 0,26– 0,33– 2,29∆Exports EU28 – FTA (%)

41,38

59,50

55,64

63,92

68,28

45,86

46,75

∆Imports EU28 – TUR (%)-0,27– 0,500,10– 0,11

0,42– 0,19– 0,51∆Imports EU28 – FTA (%)

41,36

56,16

45,81

37,70

40,19

33,11

41,61

∆Welfare (%)c) Results for the EU

Source: author’s own calculations, RoW = all countries in the world except EU28

46

Turkey’s EU integration at a crossroads

Figure 29: Changes in Turkish industrial exports to the EU28

– 0.04textiles

0.50
0.28
0.23

clothes0.86– 0.13
0.58

wood

0.34
0.90
0.44
– 2.69– 2.44
0.57
0.44
0.43

chemicals, rubber, plastics

mineral products nec

0.44
0.63
– 2.440.33
0.66– 0.820.73– 2.39ferrous metals

metals nec

0.51

metal products

automobile vehicles and partstransport equipment

0.21– 1.04

electronic equipment

0.28– 0.690.55

0.35

paper, publishingpetroleum, coal products

0.38– 0.28

leathermachinery and equipment nec

manufacturing nec

n TTIP n MERCOSUR
Source: WITS – TRAINS Tariff Data and author’s own illustration

47

Turkey’s EU integration at a crossroads

Figure 30: Changes in Turkish exports to the EU28

1.28

electricity

0.58
0.92

gas production and distribution

0.45
2.35

water

0.80
1.36

construction

0.89
3.26

trade

0.58
1.60

transport nec

maritime transport

air transport

0.70
0.59
– 1.04– 0.54communication

financial services nec

insurancebusiness services nec

leisure and other services

public admin. / defence / health

0.13
2.05
0.73
2.59
0.76
1.72
0.74
3.15
0.69
1.20
0.73
2.51
0.81

n TTIP n MERCOSUR
Source: WITS – TRAINS Tariff Data and author’s own illustration

sumption of industrial goods from Turkey. The opposite isof this dramatic decline in exports is the problem of asym-

true for exports of agricultural goods. In the case of MER-

metry in the customs union.

COSUR, Turkish exporters in the primary sector experience above-average decreases in exports, since the part-

Finally, Figure 30 uses the service sector to illustrate toner countries already have an established export structure

what extent the negative effects in the secondary sec-in these sectors. Table 38 in the appendix, however, illus-

tor, which have been outlined, are driven by the problem oftrates that, when considering all six FTAs, Turkey will suf-

asymmetry. Since there are no tariffs in the service sector,

fer large export losses to the EU and the respective free-

there are no systematic disadvantages for Turkish compa-

trade partner countries across almost all sectors. Especiallynies in the corresponding sectors. It becomes clear fromin important industrial sectors, such as the automotive

Figure 30 that Turkish companies in nearly all sectors canor machinery-construction sectors, falls of 10 percent

increase exports to the EU. The sales of Turkish service

and 4 percent, respectively, are to be expected for Turkishproviders also increase in most sectors in the EU’s respec-

exports to the EU’s new partner countries. The main cause

tive new partner countries.

48Turkey’s EU integration at a crossroads

Due to the rise in GDP, wages and welfare in general, theIntermediate findings:

positive effect for Turkey of deepening the customs unionis shown once more. In the case of a complete deepening,

The EU’s new free trade agreements have negative conse-

Turkish GDP rises by USD 13.3 billion, which corresponds

quences for Turkish welfare. Although the cumulative

to a per capita rise of 171.1 USD. Average wages in Turkey

negative effects are not too great at first, it becomes clear

would also increase by 2.4 percent as a result of complete

at a sectoral level that important export sectors in Tur-

deepening.

key are experiencing a significant drop in trade. The asymmetrical customs agreement, which disadvantages Turkish

Table 9b) summarizes the main economic results for Ger-

exporters on the markets of the EU’s new trading partners,

many and the EU. Both Germany and the EU will benefit

is the cause of this sharp sectoral fall in exports. The nega-from deepening the customs union with Turkey. Respective

tive effects for Turkish companies are particularly substan-bilateral trade increases significantly. It is striking thattial if the EU’s new partner countries already have a strong

across all scenarios the rise in German exports to Turkey

industry in the respective sectors. The TTIP therefore

is less than the EU average, while German imports from

implies a considerable decrease in exports for Turkish

Turkey increase relatively stronger. This can be explained

companies, especially in industrial sectors.

by the fact that Turkey is an important supplier of upgradedintermediate goods for the German industry.
Table 10 shows the growth in Turkish output by sector,
classified by the three basic economic sectors. At first

5.2 Deepening the EU-Turkey Customs Union

glance it may seem surprising that, if the customs union
is expanded to include the agricultural and service sec-

Scenarios 1A) and 1B) form the basis for the following

tors, both the agricultural sector and the manufactur-

simulations. Based on the status quo of Turkish-European

ing trade show a decline in output. In this case, however,trade relations, possible alternative trade-policy positions

the following point has to be considered: the simulation

for Turkey in its dealings with the EU are analyzed.

model assumes full employment. Deepening the customs
union makes production in the Turkish service sector more

As a first step, an expansion of the EU-Turkey Customs

attractive, thus causing resources to be reallocated to theUnion to include other economic sectors is simulated.

service sector. This results in lower production in the pri-

A partial deepening in the agricultural sector and a par-mary and secondary sectors. It should also be considered

tial deepening in the services sectors are analyzed, followedthat it is already the case that the EU does not apply tar-by comprehensive deepening across all sectors. In all theseiffs for Turkey in the agricultural sector. Therefore, com-scenarios, Turkey undergoes expansion of trade with thepetition in the Turkish agricultural sector becomes more

EU as a result of deepening the customs union. This demon-

intense.

strates the importance of the service sector in particular,
which accounts for a large share of Turkish exports. If the

A look at export changes by sector in Turkey according tocustoms union is deepened to form a comprehensive cus-

Table 11 confirms what is expected if the EU-Turkey cus-

toms union, Turkish exports to the EU rise by 69.86 per-toms union is deepened. Turkey reduces its exports tocent, whereas Turkish exports to the rest of the world fallcountries outside the EU in all sectors and increases its

by -7.83 percent. By comparing deepening the customs

export volumes to the EU in the primary and tertiary sec-

union in the agricultural sector with deepening the customs

tors. At the same time, it reduces its exports to the rest ofunion in the services sector, it can be shown that this shift

the world. There is a striking decline in Turkish exports inin Turkish exports to the EU is driven by the services sector.

the secondary sector both to the EU and to the rest of theworld.

Turkish imports increase on average; however, imports
from the EU show a notably greater increase. The dom-

In summary, a very positive trend for the Turkish economy

inance of the service sector is also demonstrated here.

continues as a result of deepening the EU-Turkey customs

Whereas imports from the rest of the world fall when theunion. In a further step, the effects of the EU’s new freecustoms union expands to include the agricultural sector,

trade agreements on the Turkish economy will be analyzed,

they increase when the service sector is included.

in a similar way to scenario 1.

49

Turkey’s EU integration at a crossroads

Table 9: Findings for scenario 2a) Results for Turkey
Scenario 2)2A) Agricultural

2B) Services2C) Agricultural and services∆GDP (USD BN)

4.91

8.16

13.30

∆GDP per capita (USD)

63.17

104.97171.10∆wages (%)

0.86

1.48

2.40

∆welfare (%)

0.68

1.13

1.84

∆exports TUR – EU28 (%)

10.90

57.58

69.86

∆exports TUR – RoW (%)

2.62– 9.98–7.83∆imports TUR – EU28 (%)

13.17

26.36

40.12

∆imports TUR – RoW (%)– 2.558.22

5.60b) Results for Germany and the EU
Scenario 2)

DEU
2A)
Agriculture

2B)
Services

EU28
2C)
Agriculture
and services

2A)
Agricultural

2B)
Services

2C)
Agriculture
and services∆GDP (USD BN)

1,08

1,07

2,02

3,76

5,76

9,51

∆welfare (%)

0,03

0,03

0,06

0,02

0,04

0,06

∆Exports – TUR (%)

8,21

15,43

24,26

14,51

26,55

41,79

∆Imports – TUR (%)

12,43

69,24

83,19

10,75

57,49

69,63

Source: author’s own calculations, RoW = all countries in the world except EU28

Table 10: Findings for scenario 2C):
sectoral changes in output
Scenario 2C)
Output growth(in %)
Output growth(USD M)

Primary– 3.86– 7 358.00

Source: author’s own calculations

Table 11: Findings for scenario 2C):
sectoral changes in exports

Secondary–2.78– 12 912.00

Tertiary

Scenario 2C)

Primary

Secondary

Tertiary

7.70∆exports TUR –RoW (%)– 3.82– 6.72– 14.93

62 973.00∆exports TUR –RoW (M USD)

– 552.00– 3 960.00– 2 602.00∆exports TUR –EU28 (%)

94.51– 7.33429.13∆exports TUR –EU28 (M USD)

6  090.00– 4 647.00

56 544.00

Source: author’s own calculations, RoW = all countries in the world except EU28

50

Turkey’s EU integration at a crossroads

leads to asymmetry in Turkey’s external tariffs. Under

Intermediate findings:

the free trade agreement, European companies are able
to obtain a large market share in the free trade agreement

Expansion of the EU-Turkey customs union to include

countries, whereas merely due to tariffs being eliminatedthe agricultural and service sectors has a strong positive

under the FTA, Turkish companies become less competitive

welfare effect on the Turkish economy. Gross domestic

and withdraw from the market.

product rises by an additional 1.84 percent. Turkish exports
to the EU increase by almost 70 percent. However, this rise

As in scenario 1B), these imports fall if there are new

in exports varies across sectors. Whereas exports to the

EU free trade agreements, compared with a 40.12 per-EU increase by 95 percent for the agricultural sector andcent increase in Turkish imports from the EU as a result of

430 percent for the service sector, in the industrial sector

deepening the customs union outright. Here too, this cana fall in exports is observed. Deepening the customs union

be explained by the competitiveness argument. Under theleads to a reallocation of resources from industry to theEU’s new free trade agreements, tariffs for Turkish imports

service sector. Furthermore, the rise in exports to the EUfrom each country involved are eliminated. Therefore,

is made possible by a fall in Turkish exports to other coun-these countries become more competitive on the Turk-tries. Deepening the customs union leads to per capita

ish market. This is shown by the rise in Turkish imports

income growth of 171 USD.

from the rest of the world, which is driven in particular byimports from the free trade agreement partners involved.
To assess the effect of free trade agreements on Turkish
imports, the figures have to be compared with the effect

5.3 Comprehensive customs union between
the EU and Turkey plus EU free trade agreementsof deepening the customs union, which is 5.6 percent. It isshown that Turkish imports from the rest of the world risein all scenarios.

Scenario 3.1A) Comprehensive EU-Turkey Customs Union

The additional gain for Turkey if new EU free trade agree-

and asymmetrical free trade agreements

ments are concluded with the individual countries in the
scenario is shown by the welfare measures in the table. For

The effects of the EU’s known new free trade agreements

example, an increase in Turkish GDP of USD 13.7 billion – ifare analyzed on the basis of a comprehensive deepening of

all free trade agreements are concluded – is compared withthe customs union between the EU and Turkey. In this case,the results for an outright deepening of the customs union(and also in the following scenarios) both tariffs and NTBs

(scenario 2C). This results in an increase of USD 13.3 billion.

are eliminated.

Only eliminating the tariffs results in a loss of USD -0.08 billion (see scenario 1B)). Consequently, Turkey benefits in par-In all the scenarios under consideration, Turkey undergoes

ticular from deepening the customs union with the EU (seea very substantial expansion of its trade with the EU. Turk-

scenario 2) whereby, unlike under the status quo (scenario

ish exports to the EU increase in the scenarios by roughly1B)), it then benefits from new EU free trade agreements due

70 percent. Deepening the customs union increases Turk-

to its greater integration in the European economy.

ish exports to the EU by 69.86 percent (see scenario 2). The
EU’s new free trade agreements thus lead to an expansion

Analogous to Scenario 1B) Germany benefits in thisof Turkish exports to the EU, except in the case of the free

scenario again from the completion of new free trade

trade agreement with Japan. Compared with scenario 1B)

agreements. In Scenario 1B) Germany can expect a wel-(status quo), the new free trade agreements do not lead tofare increase amounting to 0.77 percent after all FTAs area reduction in Turkish exports to the EU.

completed, in scenario 2C) welfare increases by 0.06 percent and finally, here welfare is increasing by 0.83 per-At the same time, European free trade agreements reducecent. However, Germany does not experience additional

the volume of Turkish exports to the rest of the world morehigher welfare gains in this scenario compared to a situ-

than deepening the customs union would do alone. The

ation with an asymmetric tariff agreement with Turkey.

sharp decline in Turkish exports to each of the EU’s freeLike Germany, the EU benefits in the aggregate from new

trade agreement partners is particularly striking. As shown

FTA in this scenario. In Scenario 1B), the European wel-

earlier in scenario 1B), the structure of the customs union

fare increased by 0.67 percent in the case that all FTAs are51

Turkey’s EU integration at a crossroads

Table 12: Findings for scenario 3.1A)a) Results for Turkey
Scenario 3.1A)

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)∆GDP (BN USD)

13.48

13.32

13.34

13.31

13.49

13.25

13.66

∆GDP per capita (USD)

173.36171.38171.58171.22173.50170.43175.70
2.61∆wages (%)

2.49

2.42

2.41

2.40

2.46

2.42

∆welfare (%)

1.87

1.84

1.85

1.84

1.87

1.83

1.89

∆exports TUR – EU28 (%)

70.45

69.70

70.16

69.95

70.96

69.87

71.77

∆exports TUR – RoW (%)– 7.94– 7.74– 7.96– 8.05– 7.90– 7.62– 8.06∆exports TUR – FTA (%)– 10.61– 13.47– 9.76– 15.72– 15.82– 11.28– 11.93∆imports TUR – EU28 (%)

38.61

39.22

39.91

39.86

38.99

39.26

35.59

∆imports TUR – RoW (%)

6.44

6.02

5.79

5.70

6.71

6.15

8.59

∆imports TUR – FTA (%)

16.77

18.91

15.42

10.90

43.81

26.53

18.95

b) Results for Germany
Scenario 3.1A) DEU

TTIPMERCOSUR

ASEAN∆GDP (BN USD)

13,77

Japan
5,26

CETA
3,65

India
4,32

5,84

5,58

Combined (1–6)
27,89∆GDP per capita (USD)

341,45

168,63

64,43

44,63

52,83

71,48

68,35

∆welfare (%)

0,41

0,16

0,11

0,13

0,17

0,17

0,83

∆Exports DEU – TUR (%)

23,08

23,64

24,08

23,90

23,34

23,53

20,47

∆Exports DEU – FTA (%)

43,51

49,97

55,15

73,04

80,35

48,12

49,05

∆Imports DEU – TUR (%)

83,90

82,81

83,53

83,56

84,88

83,20

85,95

∆Imports DEU – FTA (%)

45,67

51,11

46,89

39,84

34,02

30,76

42,54

MERCOSUR

ASEAN

21,89

23,59

c) Results for the EU
Scenario 3.1A) EU28

TTIP

∆GDP (BN USD)

60,77

Japan
24,57

18,21

India
18,23

Combined (1–6)
118,50∆welfare (%)

0,37

0,15

0,11

0,11

0,13

0,15

0,73

∆Exports EU28 – TUR (%)

40,25

40,88

41,57

41,53

40,64

40,92

37,20

∆Exports EU28 – FTA (%)

41,65

59,78

55,94

64,27

68,81

46,13

47,08

∆Imports EU28 – TUR (%)

70,22

69,47

69,93

69,72

70,73

69,65

71,54

∆Imports EU28 – FTA (%)

40,77

55,90

45,28

37,25

39,48

32,39

41,02

Source: author’s own calculations, RoW = all countries in the world except EU28

52

CETA

Turkey’s EU integration at a crossroads

signed, in scenario 2C) by 0.06 percent and by 0.73 percent

exports in the secondary sector declined in all scenarios,in this scenario. Again, as in the case of Germany the EU

sharply in some, with the exception of leather products.

does not experience additional welfare effects comparedThis picture corresponds with the export-growth figures

to a situation with an asymmetric customs union situation.

for scenario 1B). Consequently, the expansion of the cus-

The situation is different with trade flows. German andtoms union to include the primary and tertiary sectors

European imports show a significant increase, which cancompensates for the decline in exports in the secondary

be attributed to the production networks.

sector in the case of each new free trade agreement.

Scenario 3.1A) above represents one of Turkey’s realistic

The metal, transport, and textile industries figure strongly

options for realigning its trade-policy position with the EU.

in the decline in Turkish exports. Strong growth in the ter-

Therefore, it is worth taking a detailed look at the results

tiary sector is driven in particular by the provision of ser-from this simulation.

vices in the transport and tourism industries. In the primarysector, trade in livestock and cereals benefits the most.

Table 13 shows Turkey’s export growth by sector in thewhole world upon concluding each of the free trade agree-

In a further step, growth in Turkey’s exports and imports

ments. The primary sector covers sector numbers 1 to 26

in bilateral trade with selected countries and regions is(except 15, 16, 17, and 18). The secondary sector covers sec-

considered. Here, it should be borne in mind that thesetors 15, 16, 17, 18, and 27 to 42. The final sectors belong toeffects do not result only from the EU concluding vari-

the tertiary sector.

ous free trade agreements, but also from deepening the
EU-Turkey Customs Union.

This demonstrates strong growth in Turkish exports, especially in the primary and tertiary sectors, i.e. the sectors

Thereby, growth in Turkey’s exports is particularly high inwhich the customs union would expand to include. Turkish

small economies in Western Europe. Luxembourg is a

Table 13: Findings for scenario 3.1A): sectoral changes in exports (in percent)Scenario 3.1A) Turkish exports to the entire world

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Primary

27.26

27.02

26.45

26.38

26.52

26.62

Combined (1-6)
27.75

Secondary– 7.52– 7.47– 7.08– 7.31– 6.80– 7.02– 8.01

Tertiary

178.93177.43176.88177.01178.07

176.75183.78Source: author’s own calculations

Table 14: Findings for scenario 3.1A) compared to scenario 2C) (in percent)Germany

Great Britain

France

Italy

Spain

Scenario 2) Agriculture and services,
Combined (1–6)∆exports TUR – (%)

83.45

103.52

44.61

39.82

46.67

Scenario 3.1A)∆exports TUR – (%)

86.22

104.77

44.64

42.20

46.57

Canada

Japan

India

ASEAN

Source: author’s own calculations

Table 15: Findings for scenario 3.1A) compared to scenario 2C)
USA
Scenario 2) Agriculture and services,
Combined (1–6)∆exports TUR – (%)– 9.38– 8.60– 10.70– 9.26– 10.69

Scenario 3.1A)∆exports TUR – (%)– 10.76– 10.13– 13.98– 15.79– 11.54

Source: author’s own calculations

53

Turkey’s EU integration at a crossroads

Table 16: Findings for scenario 3.1A): list of countries with changes to exports
Scenario 3.1A)
Export growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

EU28

70.45

69.70

70.16

69.95

70.96

69.87

71.77

Luxembourg

213.16214.16209.45210.20212.38211.30221.32

Portugal

141.33139.09138.80138.09141.70138.23144.56

Ireland141.31130.05130.51130.38131.53130.88144.17

Netherlands

134.96134.65134.04133.46133.32133.46

136.62Austria

126.50124.12124.10124.13125.64123.86130.38

Sweden111.32110.64110.23110.47111.78110.68115.25

Denmark

103.61106.28102.62100.98102.99101.18107.11

Great Britain

103.81103.24103.65103.56104.52103.52104.77

Bulgaria

87.70

87.05

87.20

86.99

87.28

86.99

88.93

Germany

84.17

83.08

83.80

83.82

85.15

83.47

86.22

Latvia

73.65

74.35

73.10

74.33

73.79

71.34

73.57

Poland

67.31

66.28

67.32

67.06

67.88

67.11

67.65

Finland

62.09

62.21

60.37

61.24

62.16

61.28

64.80

Belgium

58.65

58.70

59.23

59.64

59.26

58.64

59.91

Greece

49.02

51.03

50.72

49.80

50.97

51.02

50.66

Lithuania

48.92

49.66

49.56

49.40

49.60

49.19

49.60

Hungary

46.22

45.84

46.13

46.29

46.83

45.77

47.22

Spain

46.43

46.34

46.73

46.28

47.85

46.29

46.57

France

44.39

43.79

44.93

44.36

45.60

44.62

44.64

Italy

41.12

39.71

40.29

39.73

40.71

39.84

42.20

Estonia

32.54

32.10

32.22

31.83

32.63

31.84

32.91

Croatia

24.08

23.64

23.83

23.62

24.44

23.85

24.99

Czech Republic

20.18

19.36

20.34

20.59

21.20

20.31

20.54

Cyprus

18.15

18.36

18.58

18.08

18.44

18.14

19.00

Slovakia

15.84

14.96

15.91

16.87

16.50

15.55

17.37

Romania

8.89

8.27

8.89

8.82

9.11

8.77

9.17

Slovenia

5.96

5.78

6.99

6.94

7.49

6.86

5.77

Malta

2.08

2.11

2.92

2.99

3.32

3.31

1.60

Central Asia

– 6.95– 6.96– 6.93– 7.02-6.80– 6.75– 6.99Canada– 9.37– 8.54– 9.76– 8.56-8.61– 8.35– 10.13USA– 10.61– 9.39– 9.73– 9.47-9.40– 9.15– 10.76

ASEAN– 10.68– 10.81– 10.83– 10.93-10.57– 11.28– 11.54

Japan– 10.91– 13.47– 10.92– 10.86-10.63– 10.76– 13.98

India– 9.42– 9.12– 9.45– 15.72-9.24– 9.05– 15.79

MERCOSUR– 8.75– 8.58– 8.89– 8.83-15.82– 8.56– 15.79

Source: author’s own calculations

54

Combined (1–6)

Turkey’s EU integration at a crossroads

key example, with export growth of 221 percent for Tur-The lower section of Table 16 lists the countries and regions

key in the simulation. However, Luxembourg is not one ofof each of the EU’s free trade agreement scenarios. This

Turkey’s main trading partners (see Table 35), which meansshows the increased competitiveness in these markets fol-that this high percentage growth accounts for only a small

lowing the free trade agreement between each country andamount in real terms. The five largest European export

the EU. This would mean that Turkey experiences a decline

partners for Turkey in 2011 were Germany, Great Britain,

in exports to these countries as it would then be less com-

France, Italy, and Spain. In 2011 Turkey exported between

petitive. The decline in exports in the six regions is most

USD 5 and 20 billion to each of these countries. The simu-

apparent where the EU initiates a free trade agreement

lation resulted in export growth for these countries ofwith the region.

40 percent to 100 percent. Germany (+86 percent) and GreatBritain (+104 percent) in particular, which are the largest

However, it is apparent here that Turkish exports also fallrecipients of Turkish exports, stand out here.

in every other potential free trade agreement partner country, even if there is no existing free trade agreement. This is

To determine the effect of the free trade agreement, export

linked with deepening the customs union, which increas-

growth rates are given here which are to be expected if the

ingly channels the export flow of Turkish goods to EU coun-customs union is deepened but there are no new free tradetries. Still, it can be inferred from Table 16 that the conclu-

agreements with selected countries. This shows that a large

sion of European free trade agreements, despite a deepening

proportion of the increase in trade already arises if the cus-of the customs union, will continue to have a negative effecttoms union is deepened. However, it is not only that theon Turkish exports to many countries – especially in coun-potential negative effects on Turkey of new EU free tradetries that are potential free trade agreement partners.

agreements are compensated for, but that Turkey benefits
much more from these free trade agreements as well.

Table 17 makes it possible to quantify the changes in theeffects on Turkey under two scenarios. First, export chan-

On the other hand, many countries in Eastern Europe will

ges for the EU’s most important free trade agreement part-

experience a rise in Turkish exports of 1 percent to 32 per-ners are shown for the status quo. As with the correspond-

cent. These are also countries in which Turkey does noting scenario 1B), it is clear that Turkish exports in all of

have high export volumes. Hence, Turkey undergoes very

the EU’s new partner countries will decrease as a resulthigh nominal export growth in countries to which itof the problem of asymmetry. The second line now quan-already exports a great deal as part of the status quo.

tifies the same free-trade effect after the customs union

Table 17: Net free trade agreement effects on Turkish exports under various scenarios
USA

Canada

Japan

India

ASEAN

Scenario 1B)

Combined (1–6)∆exports TUR – (%)– 1.42– 1.68– 3.54– 7.08– 1.00

Scenario 3.1A)∆exports TUR – (%)– 1.38– 1.59– 3.28– 6.59– 0.96

Table 18: Sectoral net FTA effects of a free trade agreement on Turkish exports
USA
Primary

Canada

Japan

India

ASEAN

EU28
– 0.11

Status quo– 0.73– 2.35– 7.03– 9.00– 1.65

Net 31A

0.59– 1.82– 6.07– 8.00– 0.11

1.84

SecondaryStatus quo– 2.83– 1.75– 3.22– 7.06– 1.94– 1.28

Net 31A– 2.70– 1.74– 3.06– 6.62– 1.87– 1.30Tertiary

Status quo

1.29– 1.09– 2.70– 3.53– 0.36

3.01

Net 31A

0.80– 0.76– 2.59– 3.26– 0.61

17.39

55

Turkey’s EU integration at a crossroads

Table 19: Findings for scenario 3.1A) compared to scenario 2C)

Scenario 2) Agriculture and services,
Combined (1–6)
Scenario 3.1A)

Germany

Great Britain

France

Italy

Spain

∆imports TUR – (%)

23.47

66.42

40.85

29.49

41.49

∆imports TUR – (%)

19.70

62.80

36.60

22.99

37.87

USA

Canada

Japan

India

ASEAN

Source: author’s own calculations

Table 20: Findings for scenario 3.1A) compared to scenario 2C)

Scenario 2) Agriculture and services,
Combined (1–6)∆imports TUR – (%)

5.72

6.90

5.02

9.88

5.52

Scenario 3.1A)∆imports TUR – (%)

15.89

13.69

18.41

15.20

23.88

Source: author’s own calculations

has been deepened. By doing so, those trade effects result-

As already shown in the overview table for scenario 3.1A),

ing only from deepening the customs union are calculated.

the picture presented is different when considering theThis makes it clear from Table 17 that, if there is a compre-change in Turkish exports. In this case, Table 21 is headed

hensive customs union, the negative trade effects in the

not by Luxembourg but by Lithuania and Latvia. These are

EU’s partner countries for Turkish companies will be lower.

both countries that do not deliver large quantities of goods

The deepening of the customs union compensates Turkish

to Turkey in real terms in the status quo.

exports in the disadvantaged third countries.
Important suppliers to Turkey are the same as its largTable 18, like Table 17, compares the trade effects for Tur-est export partners: Germany, Great Britain, France, Italy

key from the free trade agreement only, under the two sce-and Spain. While Turkish exports to Germany have risennarios. It is clear that deepening the customs union in third

sharply as the customs union and free trade agreements

countries initially compensates for the problem of asym-

have been deepened, Turkish imports from Germany havemetry. In both the primary and tertiary sectors, the neg-

not increased substantially. A 20 percent growth rate is

ative trade effects are predominantly lower. However, it isexpected, which corresponds to nominal growth of aroundimportant to note that, in direct trade between Turkey and

USD 5.6 billion.

the new EU partner countries, a decline in exports is mostly
observed. However, Table 18 also shows that Turkey is fully

Among Turkey’s largest import partners, Great Britain

compensated for being disadvantaged in third countries, byin particular shows an expected import growth of overan indirect effect arising from deeper customs union. With

60 percent in all scenarios. As shown previously for export

the EU’s new free trade agreements, Turkish exports in thegrowth, the following Table 19 shows the extrapolated

primary and particularly the tertiary sectors rise. Conse-

free trade agreement effects for Turkey’s largest importquently, deepening the customs union leads to greater inte-

partners. It should be noted that there is a negative effectgration with the services sector in the EU. Increasing EU

on Turkish imports from the European counties shown.

exports to new partner states also benefits Turkish service
providers via production integration with the EU and com-

This decline is related to the fact that the introduction ofpensates for the problem of asymmetry.

new free trade agreements would bring new competitors
onto the Turkish market. Table 20 below shows a sharp rise

Basically there is scope for Turkey to optimize its situation,in Turkish imports from the various free trade agreement

as long as unilateral tariffs in the primary and secondary

countries. An increase of 5.72 percent in Turkish imports

sectors remain in place in the EU’s new partner states.

from the USA is therefore expected if the customs union
is deepened only, whereas if all the EU’s potential free
trade agreements are concluded, this increase would be
15.64 percent.

56

Turkey’s EU integration at a crossroads

Table 21: Findings for scenario 3.1A): list of countries with import changes
Scenario 3.1A) Import growthfor Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)

EU28

38.61

39.22

39.91

39.86

38.99

39.26

35.59

Lithuania

189.34201.82201.64202.10195.31201.86180.83

Latvia162.22172.06

172.61

172.38166.81172.50153.85

Cyprus157.12

157.95157.99158.70156.80157.34151.10

Luxembourg

128.92130.00131.28131.65130.33131.59125.78

Bulgaria

91.51

93.40

93.99

94.05

92.93

93.07

87.99

Denmark

93.19

92.60

95.52

96.13

95.24

95.16

86.23

Malta

90.12

90.69

91.40

92.91

91.38

90.69

82.77

Poland

73.09

73.89

74.25

74.23

72.50

73.86

69.76

Netherlands

70.83

71.83

72.64

72.67

71.82

72.17

67.50

Ireland

71.07

78.24

79.14

79.01

77.51

78.30

66.44

Great Britain

64.97

65.69

66.82

66.20

65.70

65.45

62.80

Austria

65.18

66.86

67.42

67.32

65.96

66.75

60.93

Hungary

64.76

65.29

65.81

65.62

61.79

65.37

59.46

Greece

50.46

51.41

52.09

52.72

51.29

51.42

45.98

Spain

40.47

40.59

41.41

41.40

40.51

40.75

37.87

France

39.72

40.12

40.54

40.72

39.45

40.21

36.60

Portugal

36.38

37.21

38.04

38.27

37.06

37.62

33.53

Belgium

26.28

25.67

26.02

25.52

25.75

25.75

24.21

Italy

27.11

27.59

29.03

29.39

28.15

27.74

22.99

Romania

24.62

25.07

25.50

25.56

24.97

25.00

22.28

Slovenia

22.85

23.32

23.50

23.50

23.23

23.29

21.28

Sweden

23.79

24.40

24.96

24.73

24.35

24.43

21.20

Czech Republic

22.44

22.98

23.10

22.89

22.52

22.78

20.71

Germany

22.29

22.86

23.29

23.11

22.56

22.74

19.70

Estonia

19.74

19.80

20.28

20.22

19.47

20.35

18.18

Slovakia

14.53

15.21

15.22

14.76

14.85

15.11

12.86

Finland

13.59

13.71

14.60

14.52

14.08

14.30

11.11

Croatia

10.16

10.47

10.81

10.92

10.83

10.76

9.07

MERCOSUR– 4.68– 3.88– 3.36– 3.4043.81– 4.56

38.23

ASEAN

4.92

5.07

5.65

5.63

5.33

26.53

23.88

Japan

4.33

18.91

5.15

5.15

5.11

4.97

18.41

USA

16.77

5.47

5.96

5.74

5.57

5.31

15.89

India

8.64

17.06

9.97

10.90

9.92

9.29

15.20

Canada

6.36

6.43

15.42

6.87

6.86

6.60

13.69

Central Asia

5.68

6.48

6.56

6.71

6.49

6.21

5.48

Source: author’s own calculations

57

Turkey’s EU integration at a crossroads

MERCOSUR stands out among the free trade agreement

Turkish GDP of USD 15.41 billion is expected if all free trade

countries and regions. If Turkish imports from all of theagreements are concluded. Deepening the customs union

listed countries increase, then growth in Turkish imports

alone leads to an expected rise in GDP of USD 13.3 billion.

from MERCOSUR is only to be expected if there is a free

When considering individual free trade agreements, it cantrade agreement in place between the EU and MERCOSUR.

be seen that this gain is achieved mainly from concluding
a free trade agreement with the USA.

Intermediate findings:

The other welfare measures (per capita GDP, wages andwelfare) also show that Turkey could benefit, in some

Following deepening of the customs union, Turkish export-

respects substantially, from concluding its own free tradeers can compensate for the problem of asymmetry in theagreements. As a consequence, overall welfare increases

case of new EU free trade agreements. Concluding the six

further compared with scenario 3.1A) by over 0.2 percent-

EU free trade agreements being negotiated would result

age points.

in a 1.89 percent growth in GDP for Turkey, which is higher
than for deepening of the customs union alone, were theWhen considering trade flows, the picture clearly differs

EU not to conclude new free trade agreements. It is thefrom that of scenario 3.1A). While the change in trade bet-

growth in exports in the service sector in the EU in par-ween the EU and Turkey was hardly noticeable, changes inticular that would compensate for the decrease in Turkish

trade flows with each of the free trade partners are clear

exports to the EU’s new partner countries. Although deep-

here.11

ening the customs union will offer medium-term compensation for the problem of asymmetry, there is still the option

In scenario 3.1A), Turkish exports to the USA fall when

for Turkey to improve welfare over the long term, by elimi-

TTIP is concluded, due to asymmetry in American exter-

nating tariff asymmetry via free trade agreements with thenal tariffs for Turkey. If a basic free trade agreement is con-

EU’s new partner countries.

cluded, these exports increase. Turkish imports from eachfree trade agreement country also rise sharply.
In the considered scenario, Germany continues to benefit from the FTAs listed (welfare increases by 0.82 percent).

Scenario 3.2A) Turkey follows suit with respect toCompared to scenario 3.1A) Germany will not experienceEU free trade agreements

additional higher growth if Turkey follows the FTAs. There
are no significant welfare differences for the EU in the sce-

In scenario 3.1A), there was asymmetry regarding tar-narios 3.1A) and 3.2A).

iffs between Turkey and the EU’s new free trade agreement
partner countries. Turkey can overcome this asymmetry
via separate free trade agreements with the EU’s new free-

Scenario 3.2B) Turkey concludes equivalent FTAs

trade partners. Its competitiveness on the various foreign

with the EU

markets will increase accordingly.
In the end scenario in a hypothetical world where there is
Scenario 3.2A) simulates a situation in which Turkey con-a comprehensive customs union between the EU and Tur-cludes basic free trade agreements with each of the coun-

key, a situation is simulated in which Turkey concludes atries (regions). The EU has comprehensive free trade agree-

new, equivalent free trade agreement with the EU’s trading

ments with the USA (TTIP), Japan, and Canada. Althoughpartners. This differs from scenario 3.2A) to the effect that

this would mean that there is no asymmetry in external

now a comprehensive free trade agreement between Turkey

tariffs, there would continue to be asymmetry for contrac-

and the USA, Japan and Canada is simulated instead of atual arrangements and therefore for trade potential.

basic one.

As in scenario 3.1A), the status quo is compared with a sit-

Table 23 shows the benefit which arises for Turkey fromuation in which the EU signs these new free trade agree-

deepening the free trade agreements. Thus deepening thements while at the same time Turkey deepens the customs
union with the EU. The resulting changes are shown in
Table 22. By dismantling the asymmetry in tariffs, a rise in

58

11 Table 41 in the appendix lists the changes in Turkish exports to selected countries, and Table 42 shows the changes in Turkish imports.

Turkey’s EU integration at a crossroads

Table 22: Findings for scenario 3.2A)a) Results for Turkey
Scenario 3.2A)

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)∆GDP (USD BN)

14.45

13.58

13.44

13.34

13.63

13.50

15.41

∆GDP per capita (USD)

185.82174.67172.94171.59175.31173.62

198.23∆wages (%)

2.64

2.45

2.43

2.42

2.50

2.45

2.88

∆welfare (%)

2.00

1.88

1.86

1.85

1.89

1.87

2.13

∆exports TUR – EU28 (%)

70.41

69.58

70.12

69.94

70.60

69.72

70.95

∆exports TUR – RoW (%)– 4.79– 7.28– 7.50– 7.46– 6.59– 6.50– 1.02∆exports TUR – FTA (%)

25.22

33.96

25.81

36.29

62.78

26.48

30.26

∆imports TUR – EU28 (%)

37.96

39.16

39.90

39.70

39.32

39.15

35.02

∆imports TUR – RoW (%)

8.77

6.35

6.06

6.09

7.08

6.82

12.79

∆imports TUR – FTA (%)

37.88

44.56

37.23

18.49

50.91

40.89

33.98

Scenario 3.2A) DEU

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)∆GDP (USD BN)

13,66

5,13

3,58

4,21

5,81

5,48

27,77

∆GDP per capita (USD)

167,24

62,82

43,86

51,53

71,14

67,11

339,93b) Results for Germany∆welfare (%)

0,41

0,15

0,11

0,12

0,17

0,16

0,82

∆Exports DEU – TUR (%)

22,44

23,36

24,07

23,84

23,67

23,39

19,74

∆Exports DEU – FTA (%)

43,55

50,02

55,20

72,98

79,88

48,07

49,00

∆Imports DEU – TUR (%)

83,80

82,67

83,49

83,55

84,47

83,02

84,95

∆Imports DEU – FTA (%)

45,60

51,04

46,95

39,79

34,13

30,78

42,50

Scenario 3.2A) EU28

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)
118,11c) Results for the EU∆GDP (USD BN)

60,64

24,28

17,93

17,98

21,77

23,16

∆welfare (%)

0,37

0,15

0,11

0,11

0,13

0,14

0,73

∆Exports EU28 – TUR (%)

39,60

40,81

41,56

41,36

40,98

40,80

36,63

∆Exports EU28 – FTA (%)

41,69

59,86

55,93

64,24

68,48

46,09

47,04

∆Imports EU28 – TUR (%)

70,18

69,36

69,90

69,71

70,37

69,49

70,72

∆Imports EU28 – FTA (%)

40,70

55,83

45,37

37,21

39,59

32,41

40,99

Source: author’s own calculations, RoW = all countries in the world except EU28

59

Turkey’s EU integration at a crossroads

customs union leads to a rise in GDP of USD 13.3 billion,
the implementation of TTIP in scenario 3.1A) leads to a rise

5.4 Rolling back the customs union and implementing
a free trade agreement between the EU and Turkey

of USD 13.5 billion, and in scenario 3.2A) it leads to a riseof USD 14.45 billion. Deepening the free trade agreement
between Turkey and the USA leads to an increase in Turkish

Scenario 4A) Rolling back the customs union and implementing

GDP of USD 16.43 billion in scenario 3.2B). The same pic-

a free trade agreement between the EU and Turkey

ture applies to changes in per capita GDP, wages and overall
welfare measures.

An alternative to deepening the customs union between
the EU and Turkey is to roll back this customs union to a

Compared with the status quo, Turkey’s situation improves

free trade agreement. This would result in greater flexi-

initially by deepening the customs union. However, Tur-bility for Turkey when determining external tariffs. The

key should follow the EU’s lead as far as possible on poten-

existing tariff asymmetry would also be eliminated fortial free trade agreements, in order to avoid asymmetrical

Turkey, if the EU were to conclude a new free trade agree-

external tariffs for the EU’s new free trade agreement part-

ment.

12

ners, arising from the customs union.

In scenarios 4.1A) to 4.3A), different levels of free trade
When considering trade flows between Turkey and theagreement between Turkey and the EU are discussed

EU, not much has changed in this scenario compared withinstead of the customs union. Scenario 4.1A) establishes

previous scenarios. However, it should be noted that trade

a comprehensive free trade agreement in manufacturingwith the EU does not increase very much for Turkey whenindustries. In scenario 4.2A), basic free trade agreements

it deepens the free trade agreements. Rather the increasein the agricultural and service sectors are considered. Sce-in trade between Turkey and the various free trade agree-

nario 4.3A) changes these basic free trade agreements toment countries already observed in scenario 3.2A) is greater.

comprehensive free trade agreements.

Deepening the free trade agreement between Turkey and,for example, TTIP not only dismantles the asymmetry of

Table 24 shows that a free trade agreement between theforeign trade tariffs, but allows increased trade opportuni-

EU and Turkey is not a profitable alternative to the customs

ties in these markets.

union for Turkey. In all three scenarios, Turkey’s welfare
decreases and overall trade with the EU falls sharply. ThisThe signing of equivalent FTAs by Turkey has compared

would be accompanied by a slight increase in Turkish trade

to scenario 3.2A) not additional welfare effects. The samewith the rest of the world. However, since about 50 percent

applies to the EU.

of Turkish trade is with the EU, a slight increase in Turkish
trade with the rest of the world cannot compensate for theloss of trade volume with the EU. This is also shown in theIntermediate findings:

expected changes in GDP, wages, and welfare.

Concluding free trade agreements between Turkey and theCompared with scenario 2, in which the customs union

EU’s new trading partners results in a 2.13 percent welfare

between Turkey and the EU is deepened, scenario 4 leads

gain for Turkey. Such a trade policy could increase per cap-

to a welfare loss of -0.81 percent versus a rise of 1.84 per-ita income in Turkey by almost USD 200. If Turkey is able tocent.

conclude free trade agreements with the third countries inquestion to the same depth as the EU has, this will result in

It should also be noted that replacing the customs union

potential GDP growth of 2.5 percent. This would currentlyof the status quo with a free trade agreement leads to acorrespond to a nominal GDP increase of USD 18 billion.

clear welfare loss for Turkey. Although this is improvedby expanding the free trade agreement to other sectors,
Turkey is still better off under the status quo.
A rollback of the customs union between the EU and
Turkey leads both in Germany and in the EU to a welfare
loss. In addition to a decline in welfare by -0.03 percent

12 Table 43 in the appendix lists the changes in Turkish exports to selected countries and Table 44 shows the changes in Turkish imports.

60

to -0.05 percent, a strong drop in bilateral total foreign-trade with Turkey is observable.

Turkey’s EU integration at a crossroads

Table 23: Findings for scenario 3.2B)a) Results for Turkey
Scenario 3.2B)

TTIP

Japan

CETA

India

MERCOSUR

ASEAN∆GDP (USD BN)

16.43

13.80

13.66

13.34

13.63

13.50

Combined (1–6)
17.84∆GDP per capita (USD)

211.37177.55

175.69171.59175.31173.62229.52∆wages (%)

2.95

2.48

2.46

2.42

2.50

2.45

3.25

∆welfare (%)

2.28

1.91

1.89

1.85

1.89

1.87

2.47
71.77

∆exports TUR – EU28 (%)

71.10

69.77

70.15

69.94

70.60

69.72

∆exports TUR – RoW (%)– 2.53– 7.18– 7.08– 7.46– 6.59– 6.501.76∆exports TUR – FTA (%)

44.54

32.88

53.42

36.29

62.78

26.48

42.75

∆imports TUR – EU28 (%)

36.61

38.69

39.84

39.70

39.32

39.15

33.29

∆imports TUR – RoW (%)

11.37

6.83

6.37

6.09

7.08

6.82

16.07

∆imports TUR – FTA (%)

62.97

68.03

67.43

18.49

50.91

40.89

47.37

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)b) Results for Germany
Scenario 3.2B) DEU∆GDP (USD BN)

13,67

5,13

3,62

4,21

5,81

5,48

27,79

∆GDP per capita (USD)

167,33

62,80

44,29

51,53

71,14

67,11

340,22

0,41

0,15

0,11

0,12

0,17

0,16

0,82

∆welfare (%)∆Exports DEU – TUR (%)

21,11

22,74

24,00

23,84

23,67

23,39

17,87

∆Exports DEU – FHA (%)

43,66

50,18

55,23

72,98

79,88

48,07

49,09

∆Imports DEU – TUR (%)

84,52

82,85

83,52

83,55

84,47

83,02

85,80

∆Imports DEU – FHA (%)

45,44

50,94

46,90

39,79

34,13

30,78

42,38

Scenario 3.2B) EU28

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)∆GDP (USD BN)

60,74

24,33

18,07

17,98

21,77

23,16

118,13∆welfare (%)

0,37

0,15

0,11

0,11

0,13

0,14

0,73

c) Results for the EU∆Exports EU28 – TUR (%)

38,24

40,34

41,50

41,36

40,98

40,80

34,87

∆Exports EU28 – FHA (%)

41,82

60,00

55,97

64,24

68,48

46,09

47,13

∆Imports EU28 – TUR (%)

70,87

69,54

69,93

69,71

70,37

69,49

71,55

∆Imports EU28 – FHA (%)

40,55

55,73

45,33

37,21

39,59

32,41

40,88

Source: author’s own calculations, RoW = all countries in the world except EU28

61

Turkey’s EU integration at a crossroads

Table 24: Findings for scenario 4A)a) Results for Turkey
Scenario 4A)

Industry,
comprehensive∆GDP (USD BN)∆GDP per capita (USD)

Additional agricultural andservices, basic

All sectors,
comprehensive– 8.73– 7.08– 5.85– 112.33– 91.13– 75.26∆wages (%)– 1.35– 0.96– 0.77∆welfare (%)– 1.21– 0.98– 0.81∆exports TUR – EU28 (%)– 25.76– 16.96– 16.16∆exports TUR – RoW (%)

0.31

1.22

1.58

∆imports TUR – EU28 (%)– 23.02– 14.94– 13.42∆imports TUR – RoW (%)

1.61

0.58

0.10

b) Results for Germany and the EU
Scenario 4A)

DEU
Industry,
comprehensive

Additional
agricultural andservices, basic

EU28
All sectors,
comprehensive

Industry,
comprehensive

Additional
agricultural andservices, basic

All sectors,
comprehensive∆GDP (USD BN)– 1,76– 1,49– 1,16– 7,16– 5,57– 4,74∆welfare (%)– 0,05– 0,04– 0,03– 0,04– 0,03– 0,03∆Exports – TUR (%)– 23,27– 18,22– 17,09– 23,26– 13,93– 12,39∆Imports – TUR (%)– 24,60– 15,56– 14,08– 25,72– 17,07– 16,27

Source: author’s own calculations, RoW = all countries in the world except EU28

Scenario 4B) Implementing a free trade agreement between

on conclusion of all new free trade agreements, and welfare

the EU and Turkey and an asymmetrical free trade agreement

loss would be an additional 0.1 percentage point.

Rolling back the EU-Turkey Customs Union and replacing

While, as a full member of the customs union, Turkey could

it with a free trade agreement gives Turkey more freedom

expect a 1.87 percent welfare gain as a result of TTIP, thisto determine external tariffs. This would mean that Tur-

would fall to -0.96 percent if there were only a free trade

key would no longer be obliged to grant the EU’s new trade

agreement between the EU and Turkey. Compared withpartners a tariff-free market access.

scenario 1B), which assumes the status quo in relations
between Turkey and the EU, it becomes clear that Turkey

The extent to which this freedom to determine external

would be in a considerably worse position in the event of a

trade tariffs, if Turkey concluded a new EU free trade

new EU free trade agreement compared with the status quo.

agreement, would have an impact is simulated in the following scenario. First the existing customs union is rolled

However, when assessing the welfare effect in the caseback and replaced with a comprehensive free trade agree-of the TTIP it can be seen that Turkish welfare with TTIP

ment in manufacturing industries and a basic free trade

is higher than the status quo if there is a free trade agree-

agreement in the agricultural and services sectors. The

ment between the EU and Turkey. Welfare growth for Tur-

usual potential new EU free trade agreement scenarios

key with TTIP compared with scenario 1B) is: 0.01 percent;then follow, in which Turkey does not take part.

with the corresponding figures extrapolated from scenario
4B): (-0.96 percent – (-1.21 percent)) = 0.25 percent (theseCompared with scenario 4A) there is a further deterioration

figures have been rounded up, but the ranking remains

in Turkey’s economic situation in the event of a new EU

the same even if the exact figures are used). Here too,

free trade agreement. GDP would fall by a further billion

it can be seen that Turkish-European trade decreases

62

Turkey’s EU integration at a crossroads

Table 25: Findings for scenario 4B)a) Results for Turkey
Scenario 4B)

TTIP

Japan

CETA

India

MERCOSUR

ASEAN∆GDP (USD BN)– 6.95– 7.06– 7.07– 7.10– 7.08– 7.09Combined (1–6)– 6.93∆GDP per capita (USD)– 89.45– 90.85– 90.89– 91.30– 91.14– 91.19– 89.13∆wages (%)– 0.96– 0.96– 0.95– 0.96– 0.96– 0.96– 0.97∆welfare (%)– 0.96– 0.98– 0.98– 0.98– 0.98– 0.98– 0.96– 17.48∆exports TUR – EU28 (%)– 17.29– 17.11– 16.84– 17.00– 16.65– 17.34∆exports TUR – RoW (%)

0.83

1.08

1.10

1.07

0.95

1.24

0.20

∆exports TUR – FTA (%)

0.36

1.88

– 0.95– 7.22– 7.843.79– 1.18∆imports TUR – EU28 (%)– 15.22– 15.27– 15.06– 15.16– 15.16– 15.09– 16.20∆imports TUR – RoW (%)

0.34

0.64

0.66

0.61

0.74

0.48

0.53

∆imports TUR – FTA (%)

0.15

10.18

– 0.05– 0.16– 4.27– 0.62

0.61

TTIP

Japan

CETA

India

MERCOSURASEANb) Results for Germany
Scenario 4B) DEU

Combined (1– 6)∆GDP (USD BN)

10,24

1,65

0,17

0,83

2,34

2,03

24,42

∆GDP per capita (USD)

125,33

20,23

2,02

10,11

28,61

24,85

298,99

0,30

0,05

0,00

0,02

0,07

0,06

0,72

∆welfare (%)∆Exports DEU – TUR (%)– 18,43– 18,16– 18,35– 18,52– 18,55– 18,42– 19,26∆Exports DEU – FHA (%)

43,08

49,78

54,77

72,63

79,64

47,70

48,48

∆Imports DEU – TUR (%)– 16,03– 15,97– 15,42– 15,54– 15,09– 16,03– 16,33∆Imports DEU – FHA (%)

46,61

51,51

47,73

40,84

34,80

31,83

43,63

Scenario 4B) EU28

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)∆GDP (USD BN)

45,77

11,98

3,08

3,19

6,75

8,34

106,02∆welfare (%)

0,28

0,07

0,02

0,02

0,04

0,05

0,65

c) Results for the EU∆Exports EU28 – TUR (%)– 14,22– 14,27– 14,05– 14,15– 14,15– 14,08– 15,20∆Exports EU28 – FHA (%)

41,39

83,83

55,73

64,05

68,31

45,88

48,98

∆Imports EU28 – TUR (%)– 17,40– 17,22– 16,95– 17,11– 16,76– 17,45– 17,59∆Imports EU28 – FHA (%)

41,38

56,60

45,85

37,99

40,19

33,18

42,12

Source: author’s own calculations, RoW = all countries in the world except EU28

under all scenarios. The fact that the effects on welfare

Strong growth is shown in Turkish exports, especiallyare so negative in the simulation can be explained byin the primary and tertiary sectors; these are the sec-

the importance of Turkish-European trade to the Turkish

tors for which there is now a basic free trade agreement

economy.

between the EU and Turkey. Turkish exports in the secondary sector declined in all scenarios, sharply in some cases.

Table 26 below shows Turkey’s sectoral global export

The metal, transport, and textile industries figure strongly

growth if the respective free trade agreements are con-in the decline in Turkish exports. Strong growth in thecluded. The primary sector covers sector numbers 1 to 26

tertiary sector is driven especially by the provision of ser-(except 15, 16, 17, and 18). The secondary sector covers sec-

vices in the transport and communications industries. In

tors 15, 16, 17, 18, and 27 to 42. The remaining sectors

the primary sector, animal and cereals trade benefits thebelong under the tertiary sector.

most.

63

Turkey’s EU integration at a crossroads

Table 26: Findings for scenario 4B): sectoral changes in exports
Scenario 4B)
Turkish exports to the entire world

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)

Primary

16.28

17.68

16.79

16.96

15.89

16.33

16.11

Secondary– 34.59– 34.50– 33.96– 34.22– 33.65– 34.23– 35.14

Tertiary

49.50

49.49

49.04

49.22

49.25

47.48

51.03

Italy

Spain

Source: author’s own calculations

Table 27: Findings for scenario 4B) compared to scenario 4A)
Germany

Great Britain

FranceScenario 4A) Industry, comprehensive
Agricultural and services, simple,
Combined (1–6)∆exports TUR – (%)– 15.43– 12.02– 23.57– 19.47– 24.63

Scenario 4B)∆exports TUR – (%)– 7.18– 15.34– 13.79– 18.43– 10.09

Source: author’s own calculations

In a further step, Turkey’s export and import growth inexports to some countries. This can be explained by thebilateral trade with selected countries and regions is con-strong industrial network that Turkey shares with many EU

sidered. Here, it should be noted that these effects do notcountries. As an important supplier of intermediate goods,

result only from concluding the EU’s various free trade

Turkey benefits from the fact that European countries send

agreements, but also from implementing a free trade

improved final goods to these countries as a result of theagreement between Turkey and the EU.

new free trade agreement. However, any rules of origin will
limit the potential benefit to Turkey.

The expected growth in Turkish exports drops for all EU
countries except Austria and Belgium. Sharp declines inIn the lower section of Table 29, the countries and regions

export growth are recorded for East European countriesof each of the free trade agreement scenarios are listed. It

in particular. For example, for Poland a fall of -25.8 percent

is interesting to note that export growth in the various freein the case of TTIP would be expected. With USD 2.4 billion

trade agreement partner countries varies greatly. Whilein Turkish exports to Poland, this corresponds to about USD

growth in exports to Canada, India and Japan is positive,

600 million. The two largest recipients of Turkish exports

it tends to decrease for other countries. In scenario 3.1A)

in 2011 were Germany (USD 20 billion) and Great Brit-(deeper customs union and asymmetrical free trade agree-ain (USD 11 billion). The simulated decrease in the case ofment), Turkish exports to all countries fell sharply. How-

TTIP would be -7.23 percent for Germany and -15.48 per-ever, due to the expansion of the customs union, there wascent for Great Britain. This would mean a decline in Turkish

a greater shift in the Turkish exports towards other Euro-

exports of approximately USD 1.9 billion in these two coun-

pean countries. This is not the case here, since a free tradetries alone.

agreement, whether basic or comprehensive, represents a
considerably lower level of integration and trade stimulus

To extrapolate the effect of a new EU free trade agreement,

than a customs union.

the expected export growth rates are shown here where thecustoms union is rolled back and a free trade agreement

Table 28 below aims to illustrate the free trade agree-

implemented between Turkey and the EU, without new freement effect from the EU’s new free trade agreement. It is

trade agreements being concluded with selected countries.

expected that concluding this new free trade agreement

It can be seen that a large share of the decrease in trade

will lead to an increase in Turkish exports to Canada andwas the result of rolling back the customs union. However,India, while exports to other countries decrease. In the casecompared with the status quo, Turkey would benefit in thisof four of the five countries shown, export growth changes

case from the new EU free trade agreement in terms of its

from positive to negative.

64

Turkey’s EU integration at a crossroads

Table 28: Findings for scenario 4B) compared to scenario 4A)

Scenario 4A) Industry, comprehensive
Agricultural and services, simple,
Combined (1–6)
Scenario 4B)

USA

Canada

Japan

India

ASEAN

∆exports TUR – (%)

1.93

0.40

4.79

– 0.294.69∆exports TUR – (%)– 1.272.82– 0.280.57– 7.89Source: author’s own calculations

Table 29: Findings for scenario 4B): list of countries with export changes
TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)

EU28

Scenario 4B) Import growth for Turkey– 17.29– 17.11– 16.84– 17.00– 16.65– 17.34– 17.48

Austria

37.30

37.35

36.41

36.54

36.95

36.22

39.58

Belgium

4.30

0.07

0.43

0.34

0.62

0.14

4.52

Bulgaria– 3.70– 3.08– 3.06– 3.37– 3.26– 3.43– 3.14

Cyprus– 5.52– 5.89– 5.80– 5.75– 5.45– 6.29– 4.76

Czech Republic– 4.49– 3.84– 4.35– 3.75– 4.17– 5.82– 5.37

Germany– 7.23– 5.94– 7.19– 8.14– 7.24– 8.43– 7.18Denmark– 8.49– 9.07– 8.74– 9.18– 8.23– 9.69– 8.71

Spain– 10.80– 8.90– 9.16– 9.81– 9.18– 9.18– 10.09

Estonia– 9.81– 9.21– 9.25– 9.53– 9.86– 9.99– 10.51

Finland– 12.10– 12.14– 12.19– 12.29– 12.23– 12.56– 11.67

France– 12.76– 12.54– 12.13– 12.12– 11.81– 12.59– 13.79

Great Britain– 15.48– 15.50– 15.20– 15.10– 14.94– 15.70– 15.34

Greece– 16.14– 16.09– 16.01– 16.03– 15.62– 16.21– 15.68

Croatia– 15.91– 15.84– 15.30– 15.42– 14.97– 15.91– 16.21

Hungary– 16.22– 15.36– 15.43– 15.68– 15.53– 16.00– 16.41

Ireland– 19.07– 18.47– 19.19– 19.50– 19.12– 19.67– 17.89

Italy– 18.67– 18.34– 19.22– 18.54– 18.37– 18.80– 18.43

Lithuania– 18.93– 19.08– 18.42– 18.65– 18.35– 18.86– 19.55

Luxembourg– 20.27– 19.97– 19.27– 19.10– 19.03– 19.06– 20.94

Latvia– 20.62– 20.07– 19.49– 19.48– 19.63– 20.13– 21.26

Malta– 24.10– 24.26– 23.42– 23.72– 23.22– 23.86– 24.78

Netherlands– 25.87– 26.11– 25.54– 24.94– 25.32– 25.94– 25.17

Poland– 25.81– 25.93– 25.64– 25.66– 25.59– 25.87– 25.66

Portugal– 25.14– 24.78– 24.57– 24.89– 24.21– 25.19– 25.67

Romania– 26.93– 27.00– 26.69– 27.06– 26.63– 27.25– 27.51

Slovakia– 28.06– 28.23– 27.57– 27.42– 27.25– 27.78– 28.21

Slovenia– 29.17– 28.94– 29.01– 29.16– 28.75– 29.20– 28.79

Sweden– 31.16– 30.75– 29.99– 30.04– 29.77– 30.25– 31.48

Canada

4.28

4.38

4.56

4.53

4.53

3.79

2.82

India

4.12

1.88

4.57

4.72

4.60

4.41

0.57

Japan

0.36

1.69

1.58

1.93

1.72

1.96

– 0.28USA– 0.77– 0.57– 0.38– 0.41– 0.48– 0.38– 1.27

Central Asia

– 0.630.07– 0.95

0.53

0.18

0.45

– 2.24

ASEAN– 0.62– 0.39– 0.46– 7.22– 0.43– 0.24– 7.89MERCOSUR– 0.30– 0.19– 0.21– 0.09– 7.84– 0.09– 8.25

Source: author’s own calculations

65

Turkey’s EU integration at a crossroads

The USA is selected as an example. In scenario 4A) the

results in different trade flows, depending on which effects

relative attractiveness of the USA for Turkish exports

are dominant in the various countries.

increases, since the EU-Turkey Customs Union has now
been rolled back. Turkish exports to the USA therefore

A new EU free trade agreement, such as CETA, then enters

increase. In this scenario, however, all the EU’s new free

into force and export trade between the EU and Turkey

trade agreements enter into effect and the competitivenessdecreases further. But Turkey also exports less to Japan,of European exports on the American market increases

due to several effects in this complex simulation model.

sharply due to the removal of tariffs. Turkish exports toAmong other things, the reduction in Turkish GDP also

the USA therefore drop.

plays an important role.

Here, it is clear that Turkish exports to free trade agree-

Below, import growth for Turkey will now be considered inment countries behave similarly in the various scenarios.

various scenarios with individual countries and regions. As

In all scenarios, the results of the simulation for Turkish

shown in Table 25 for scenario 4B), the trends for Turkey’s

exports to Japan are less than in scenario 4A), which

exports and imports are similar in each scenario.

means that the conclusion a new European free trade
agreement will lead to a decline in Turkish exports to

As before with exports, imports from Austria and Belgium

Japan.

also increase. It can be seen across the entire table thatthe ranking is similar for European countries. The impor-

If the EU-Turkey customs Union is modified to become atant suppliers to Turkey are the same as its largest export

comprehensive free trade agreement, the level of Turkey’s

partners: Germany, Great Britain, France, Italy, and Spain.

integration in the European economy would be reduced.

While Turkish imports from Germany barely fall (-1 per-Rules of Origin would also apply, hampering trade betweencent), the simulated findings point to a reduction in Turk-

Turkey and the EU. Since it is an important market for

ish imports from Great Britain of -12.57 percent.

Turkish exports, this decline implies a drop in Turkish
economic output and Turkish GDP decreases. This leads

As shown before for export growth, Table 30 quantifies

to Turkey producing less on average across all sectors andthe FTA effects for Turkey’s largest import partners. Even

Turkish exports decreasing in all countries.

though Turkey’s imports from Germany fell sharply due tothe rolling-back of the customs union, this decline is con-

Due to trade-diversion effects, it may also then be the casesiderably diminished due to the EU’s new free trade agree-that these effects exceed those mentioned above. Turkishments. Table 25 for scenario 4B) shows that Turkish imports

exports to Japan therefore rise and those to India fall. This

from the EU as a whole fall in the scenarios. Due to the EU’s

Table 30: Findings for scenario 4B) compared to scenario 4A)
Germany

Great Britain

France

Italy

Spain

Scenario 4A) Industry, comprehensive
Agricultural and services, simple,
Combined (1–6)∆imports TUR – (%)– 18.74– 15.95– 10.91– 13.83– 20.97

Scenario 4B)∆imports TUR – (%)– 1.00– 12.57– 11.83– 19.14– 7.50USA

Canada

Japan

India

ASEAN

Source: author’s own calculations

Table 31: Findings for scenario 4B) compared to scenario 4A)

Scenario 4A) Industry, comprehensive
Agricultural and services, simple,
Combined (1–6)∆imports TUR – (%)

0.56– 0.639.03– 1.06– 1.39Scenario 4B)∆imports TUR – (%)– 0.3010.53– 0.210.30– 3.76

Source: author’s own calculations

66

Turkey’s EU integration at a crossroads

Table 32: Findings for scenario 4B): list of countries with import changes
Szenario 4B)
Import Growth for Turkey

TTIP

Japan

CETA

IndienMERCOSUR

ASEAN

Combined (1– 6)

EU28– 15,22– 15,27– 15,06– 15,16– 15,16– 15,09– 16,20Austria

19,62

20,03

19,83

19,73

19,88

19,86

19,22

Belgium

12,40

12,50

12,58

12,47

12,80

12,64

11,98

Bulgaria

5,51

5,56

5,88

5,55

5,88

5,83

4,74

Cyprus

2,40

1,86

2,20

2,53

2,28

2,02

0,33

Czech Republic

0,78

0,89

0,76

0,93

1,01

0,78

– 0,35Germany– 0,29

0,07

0,31

0,36

0,15

0,87

– 1,00Denmark– 3,25– 3,05– 3,01– 3,18– 3,04– 3,02– 3,63Spain– 6,91– 6,60– 6,48– 6,56– 6,39– 6,52– 7,50Estonia– 7,29– 4,05– 3,92– 4,10– 4,08– 4,09– 8,58Finland– 9,87– 9,96– 9,81– 9,89– 9,62– 9,80– 10,48

France– 10,99– 11,03– 11,10– 11,06– 11,16– 11,10– 11,83

Great Britain– 11,28– 10,73– 10,67– 10,79– 10,92– 10,73– 12,57

Greece– 10,47– 10,81– 9,91– 9,75– 9,75– 9,79– 12,59

Croatia– 15,96– 15,88– 15,59– 16,12– 16,06– 16,16– 16,03

Hungary– 14,78– 15,83– 14,15– 13,97– 14,12– 13,97– 17,39

Ireland– 17,09– 16,81– 16,54– 16,46– 16,89– 16,51– 18,23

Italy– 17,15– 17,21– 17,15– 16,69– 17,02– 17,10– 19,14

Lithuania– 18,95– 19,06– 19,03– 19,05– 18,95– 18,95– 19,43

Luxembourg– 18,95– 18,68– 18,87– 19,04– 19,07– 18,94– 19,77

Latvia– 20,97– 21,23– 21,02– 21,07– 21,19– 21,05– 21,66

Malta– 21,12– 21,03– 20,99– 21,04– 21,03– 20,93– 21,85

Netherlands– 22,69– 23,40– 23,51– 23,83– 23,48– 23,48– 23,17

Poland– 23,30– 22,95– 23,26– 23,42– 23,44– 23,22– 23,68

Portugal– 25,75– 25,42– 25,32– 25,50– 25,54– 25,46– 26,88

Romania– 25,72– 25,66– 25,30– 25,41– 25,47– 25,34– 26,92

Slovakia– 29,09– 28,71– 28,94– 29,26– 29,05– 28,84– 29,72

Slovenia– 33,14– 33,10– 32,97– 33,03– 32,97– 32,85– 33,34

Sweden– 35,16– 35,18– 34,98– 34,95– 34,92– 34,94– 35,66

Canada

8,99

10,18

9,15

9,08

9,22

9,19

10,53

India

0,15

0,64

0,78

0,50

0,71

0,43

0,30

Japan

– 0,74– 0,54– 0,05– 0,73– 0,48– 0,74– 0,21USA– 1,46– 1,19– 1,28– 1,35– 1,20– 0,62– 0,30Central Asia

– 1,34– 0,99– 0,98– 0,16– 0,89– 1,27– 0,41

ASEAN– 4,09– 4,04– 4,21– 4,16– 4,01– 4,29– 3,76MERCOSUR– 6,10– 5,87– 5,80– 5,91– 4,27– 5,96– 4,62

Source: author’s own calculations

67

Turkey’s EU integration at a crossroads

Table 33: Findings for scenario 4C)a) Results for Turkey
Scenario 4C)

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)∆GDP (USD BN)

0.71– 0.13– 0.25– 3.98– 3.68– 3.800.29∆GDP per capita (USD)

9.09– 1.66– 3.25– 51.22– 47.34– 48.88

3.74∆wages (%)

0.30

0.11

0.10

– 0.47– 0.39– 0.430.31∆welfare (%)

0.10– 0.02– 0.03– 0.55– 0.51– 0.530.04∆exports TUR – EU28 (%)

5.48

5.01

5.61

– 6.91– 6.28– 7.05– 1.42∆exports TUR – RoW (%)

4.92

1.99

1.68

1.77

2.81

2.83

10.28

∆exports TUR – FTA (%)

41.69

55.83

38.30

48.42

77.64

46.21

48.74

∆imports TUR – EU28 (%)

5.68

6.60

7.24

– 4.96– 5.24– 5.30– 0.66∆imports TUR – RoW (%)

0.67– 1.60– 1.84– 0.42

0.56

0.28

3.85

∆imports TUR – FTA (%)

27.26

38.18

27.36

4.89

49.79

30.65

22.71

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)b) Results for Germany
Scenario 4C) DEU∆GDP (USD BN)

11,72

3,07

1,59

1,44

2,94

2,71

25,51

∆GDP per capita (USD)

143,49

37,57

19,52

17,65

35,97

33,24

312,33

0,35

0,09

0,05

0,04

0,09

0,08

0,76

∆welfare (%)∆Exports DEU – TUR (%)

2,35

3,04

3,70

– 8,25– 8,39– 8,55– 2,53∆Exports DEU – FHA (%)

43,04

49,45

54,57

72,41

79,36

47,63

48,45

∆Imports DEU – TUR (%)

6,07

5,68

6,44

– 5,71– 4,96– 6,00– 0,89∆Imports DEU – FHA (%)

46,51

51,39

47,86

40,61

34,56

31,74

43,35

Scenario 4C) EU28

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)∆GDP (USD BN)

50,97

14,62

8,33

5,53

9,06

10,74

107,50∆welfare (%)

0,31

0,09

0,05

0,03

0,06

0,07

0,66

c) Results for the EU∆Exports EU28 – TUR (%)

6,93

7,86

8,51

– 3,83– 4,12– 4,170,52∆Exports EU28 – FHA (%)

41,36

59,50

55,54

63,89

68,23

45,84

46,69

∆Imports EU28 – TUR (%)

5,34

4,88

5,47

– 7,04– 6,41– 7,17– 1,55∆Imports EU28 – FHA (%)

41,28

56,20

45,84

37,86

39,95

33,10

41,61

Source: author’s own calculations, RoW = all countries in the world except EU28

68

Turkey’s EU integration at a crossroads

new free trade agreements, Turkey increasingly seeks trad-

third parties. While in scenario 4B) a welfare increase ofing partners within the EU.

0.72 percent is expected, in this scenario welfare gains
amount to 0.76 percent. Analogous developments are

Table 31 illustrates the import changes for each free tradeobserved in European welfare, as well as in the EU’s exter-

agreement country in the scenarios. It can be seen that,

nal trade with Turkey.

by concluding new EU free trade agreements with someof these countries, Turkey’s imports are reduced, whereas
with others they increase. The same logic applies here as

Intermediate findings:

for the exports.

By rolling back the EU-Turkey customs union to a bilatCanada stands out among the free trade agreement coun-eral free trade agreement, Turkey regains full sovereignty

tries and regions. With the exception of India, Turkish im-

over its trade policy and does not have to grant unilateralports from all countries fall, yet those from Canada increase.

trade facilitation to any of the EU’s new free-trade partners. However, this rollback of Turkish integration in the
EU leads to a significant welfare loss. In this case, Turkey

Scenario 4C) Implementing a free trade agreement between thewould undergo a drop in GDP of 0.81 percent. If the EU’s

EU and Turkey – Turkey concludes a basic free trade agreement

new free trade agreements are taken into account, Turkey undergoes a further decrease in welfare in this sce-

As for scenario 3.2A) (comprehensive deepening of the cus-

nario (-0.96 percent). Although the problem of asymmetry

toms union), a basic free trade agreement between Turkey

for Turkey no longer exists, a free trade agreement with theand the EU’s new free-trade partners is concluded. Com-EU puts Turkish exports at a disadvantage on the European

pared with scenario 4B), Turkey’s welfare increases uponmarket if the EU concludes new free trade agreements. The

concluding its own free trade agreement, but welfare is

decline in Turkish-European manufacturing networks plays

expected to increase only by 0.04 percent upon signing up

a role here and the need for certificates of origin is a decid-

to all the EU’s new trade partnerships.

ing factor. Even if Turkey concludes free trade agreementswith the EU’s new partner countries, this will not lead to

In scenario 3.2A) this expected increase in welfare amounts

better welfare effects than all the other scenarios underto 2.13 percent. Compared with scenario 4B), a compen-

consideration (deeper customs union). Turkish exports

sating effect from Turkey’s own free trade agreement withincrease in third countries since the problem of asymmetryeach scenario country is observed. Welfare in scenario 4B)

no longer exists. However, trade with the EU will decrease,fell by -0.96 percent and rose in scenario 4C) by 0.04 per-which has a more serious impact due to current trade vol-cent. Furthermore, it is very clear that, in this scenario

ume. Rolling back the customs union to a free trade agree-compared with scenario 4B), Turkey increases its exports

ment is not a wise trade policy for Turkey, if there is theand imports with each scenario country. Turkish GDP also

option of deepening the customs union.

does not drop as sharply as in scenario 4. This makes animportant contribution to preventing Turkish external
trade from collapsing.13
However, welfare gains for Turkey are mostly driven by
TTIP. In the other scenarios, welfare losses for Turkey arise
despite the country concluding its own free trade agreements. No single free trade agreement, except for TTIP,
would sufficiently compensate for the welfare losses arising
for Turkey as a result of rolling back the customs union.
Germany’s welfare rises in this scenario, more than in
Scenario 4B). Thus Germany experiences now benefits
if Turkey completes its own basic FTAs with the listed

13 Table 45 in the appendix lists the changes in Turkish exports to selected countries, and Table 46 shows the changes in Turkish imports.

69

Turkey’s EU integration at a crossroads

6. Comparison of welfare effects
in all scenarios

In Figure 31, changes in Turkish exports to the EU and

Figure 32 shows the changes in Turkish welfare in eachthe rest of the world, as well as Turkish welfare, are com-scenario. The deepening of the customs union in particularpared for all scenarios. The positive effect of deepening

is desirable for Turkey in terms of welfare changes. Rolling

the EU-Turkey customs union can be seen in scenariosback the customs union and subsequently concluding a free

2 and 3. It is also shown across all scenarios that Turkey

trade agreement with the EU is not an attractive option forwill benefit if it follows suit with the EU free trade agree-

Turkey based on overall changes to welfare. In addition, thements.

welfare effects for Germany and the EU are reported. Bothregions have the highest welfare effects, if the customs

The graph also shows that trends for Turkish exports

union with Turkey is deepened and at the same time FTA

to the EU run counter to those in the rest of the world inwith third countries (including Turkey) are completed

most scenarios. This is explained by the deeper or – as(scenarios 3).

the case may be – reduced integration of Turkey in theEuropean economy and by changes in trade flows ofDepending on Turkey’s trade-policy position towards the

goods to which this leads (e.g. implementation of rules ofEU (status quo, deeper customs union or free trade agree-

origin).

ment), the Turkish economy reacts differently to the EU’s

Figure 31: Comparison of all scenarios for welfare and trade changes
Percent

Percent

80

4

60

3

40

2

20

1

0

0

– 20

–1
1A)
1B)
Status quo

2A)
2B)
2C)
3.1A)
3.2A)
3.2B)
Customs union between Turkey and the EU deepenedn ∆Export TUR – EU28 (%) n ∆Export TUR – RoW (%)
Source: author’s own calculations and illustration

70∆Welfare (%) (right)

4A1)
4A2)
4A3)
4B)
4C)
Rollback of FTA between Turkey and the EU

Turkey’s EU integration at a crossroads

Figure 32: Comparison of welfare changes across all scenarios∆ welfare – Turkey
percent

2.47
2.13
1.84

1.89

1.13

0.68

0.04
– 0.03– 0.01– 0.81– 0.98– 0.96– 1.21

1A)

1B)

2A)

Status quo

2B)

2C)

3.1A)

3.2A)

3.2B)

Customs union between Turkey and the EU deepened

4A1)

4A2)

4A3)

4B)

4C)

Rollback of FTA between Turkey and the EU∆ welfare – EU28
percent
0.73

0.67

0.07

1A)

0.02

1B)

2A)

Status quo

0.04

2B)

0.73

0.73

2C)

3.1A)

3.2A)

3.2B)

Customs union between Turkey and the EU deepened

0.83

percent

0.82– 0.04– 0.03– 0.03

4A1)

4A2)

4A3)

1A)

1B)

Status quo

2A)

0.03

2B)

4B)

4C)

Rollback of FTA between Turkey and the EU

0.82

0.77

0.03

0.66

0.06

∆ welfare – DEU

0.10

0.65

0.72

0.76

4B)

4C)

0.06

2C)

3.1A)

3.2A)

Customs union between Turkey and the EU deepened

3.2B)– 0.05– 0.04– 0.03

4A1)

4A2)

4A3)

Rollback of FTA between Turkey and the EU

Source: author’s own calculations and illustration

71

Turkey’s EU integration at a crossroads

new FTAs. However, in the simulations the isolated effect

As the comparison of all scenarios for changes in Turkish

of a new EU free trade agreement on Turkish welfare iswelfare shows, Figure 34 represents the changes in Turkish

not provided. This effect is approximately the difference

exports to the EU.

between the various scenario results.
Based on the welfare results, the trade-policy recommenFigure 33 compares scenario 3.1A) (expansion of Turkish

dations for Turkey are clear. Due to the increasing num-

Customs Union plus new EU free trade agreements) with

ber of free trade agreements being sought by the EU, Tur-2C) (expansion of Turkish Customs Union) and 4B) (compre-

key should correct the disadvantages resulting from thehensive free trade agreement in secondary sector and basic

Ankara Agreement by adapting the EU-Turkey customs

free trade agreement in primary and secondary sectors

union. The simulations in this study come to the clear

plus new EU free trade agreements) with 4A2) (comprehen-conclusion that Turkey should seek to deepen the customs

sive free trade agreement in the secondary sector and basic

union by including the agricultural and service sectors.

free trade agreement in the primary and secondary sectors).
Therefore the differences observed can be compared with

Full integration of Turkish industry in the EU customs

the simulated welfare effects in scenario 1B).

union in itself offers the chance of substantial welfare

Under the status quo, Turkey benefits only from the EU’s

ing problem of asymmetry can be compensated for by

new free trade agreements with the USA and Canada. Withstrong bilateral trade.

growth. It is also clear from the simulation that the exist-

a free trade agreement between the EU and Turkey, Turkey
would also benefit from an EU free trade agreement withAdditionally, in the long term, efforts should be madeJapan and in the event that the EU signs all other FTAs.

to eliminate the problem of asymmetry. This can, forexample, be achieved by expanding the Ankara Agree-

However, if the EU-Turkey customs union is deepened,

ment, in which tariff-easing for European firms in third

Turkey would benefit from the EU’s new free trade agree-

countries could also be taken into account for Turkishments except in the case of ASEAN.

companies.

Figure 33: Comparison of welfare changes in scenarios 1B), 3.1A) and 4B)∆ welfarepercent
0,05

0,04

0,03

0,02  

0,01

0,00

– 0,01TTIP

Japan

n Status quo n Deepening the customs union n Rollback to FTA
Source: author’s own calculations and illustration

72

CETA

India

MERCOSUR

ASEAN

Combined

Turkey’s EU integration at a crossroads

Figure 34: Comparison of export changes in scenarios 1B), 3.1A) and 4B)∆Export TUR – EU28
percent
2,0

1,5

1,0

0,5

0,0

– 0,5
TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined

MERCOSUR

ASEAN

Combinedn Status quo n Deepening the customs union n Rollback to FTA
Source: author’s own calculations and illustration

Figure 35: Comparison of import changes in scenarios 1B), 3.1A) and 4B)∆Import TUR – EU28
percent
0,0

– 1,0

– 2,0

– 3,0

– 4,0

– 5,0
TTIP

Japan

CETA

India

n Status quo n Deepening the customs union n Rollback to FTA
Source: author’s own calculations and illustration

73

Turkey’s EU integration at a crossroads

7. Summary and conclusions

The integration of Turkish industry into the European

third countries, Turkey is obliged to open its market

Customs Union has led to a steady increase in bilateral

to these third countries if the EU signs a free trade agree-

economic relations between the EU and Turkey. Particularly

ment with them. In return, Turkish companies can estab-since 2002, Turkish industry has been increasingly inte-lish free commodity trade with the EU28 states, but can-grated in European production networks. The EU is by far

not receive any of the benefits that were negotiated forTurkey’s most important trading partner and, in turn,European exporters to third countries. Discrimination

Turkey is the EU’s sixth largest trading partner. Germany

against Turkish exports arises technically where there arein particular has fostered enduring economic relations withfree trade agreements with third countries, since EU trade

Turkey. While 9 percent of Turkish exports go to Germany,

agreements are negotiated at EU level and Turkey has no

approximately 10 percent of all Turkish imports are fromright to participate in drawing up these agreements, even

Germany.

when their effects – as in the case of the customs union –have dramatic economic implications for the country.

This study has shown that the economic integration of Turkey via the EU Customs Union has so far had very positive

In this respect, the Ankara Agreement is a flawed tradeeffects. The success of this economic integration has been

agreement, since its original intention of deepening

at risk for some time, since institutional weaknesses in thebilateral economic relations between the EU and Turkey

way the European customs union is organized in Turkey’s

is being undermined by the problem of asymmetry pre-case bring about increasingly negative consequences forsented here.

Turkish industry.
This study shows that Turkish exports will suffer signifiThe existing customs agreement was designed and agreed

cant setbacks after every new EU free trade agreement

upon as an intermediate step in Turkey’s integration processwith a third country. If no measures are taken in the short

into the EU. However, today this trade agreement – initiallyterm, there is the risk of a marked deterioration in Euro-

designed as a temporary agreement – provides the basis

pean-Turkish economic relations. It is also clear basedfor European-Turkish economic relations and the economic

on other, external factors that there is an urgent need

integration of the two regions. The fact that the Ankara

for political change. The Russian president, Vladimir

Agreement contains some flaws (especially because it was

Putin, has offered Turkey membership of the Eurasianconceived as a temporary solution) has had no significant

Customs Union. Turkish politicians are increasingly

impact on European-Turkish economic relations in the past.

discussing this option as an alternative to the European
Customs Union.

However, this picture has recently changed due to theEU’s new free trade agreements. This study shows that theAlternatively, conservative politicians in Turkey are calling

structure of the EU-Turkey customs union, in conjunction

to be released from the unilateral customs union with thewith the EU’s new free trade agreements with third coun-

EU and to establish a European-Turkish free trade agree-

tries, has weaknesses that will lead to significant negative

ment instead. However, the results of this study clearly

consequences for Turkey.

show that, if Turkey turns away from the EU, such as byrolling back the customs union to a free trade agreement,

As a result of the customs union agreed with the EU and thethis will be accompanied by considerable welfare losses forcorresponding principle of joint customs harmonization forthe country.

74Turkey’s EU integration at a crossroads

Due to the structure of free trade agreements, this kind

Turkey’s full membership of the EU, which can be achievedof trade policy would lead to a steady decrease in Turkey’s

by implementing the acquis communautaire. In Turkey ineconomic integration in the EU. In particular, according toparticular, this politically charted route to integration – inthese results, previously successful integration of Turk-

which all reforms in a candidate country are evaluated with

ish industry into European production networks would nothe aim of eventually ratifying full membership – leads

longer progress under a free trade agreement, but would

to conflict with intermediate reform goals, which have notdecline instead. Theoretically, a free trade agreement

been explicitly defined by the EU and Turkey. The mutu-

between Turkey and the EU offers the Turkish government

ally agreed, partial integration of Turkey in the European

the opportunity to regain sovereignty over trade policy,

Customs Union contains structural institutional weak-

but if the economic disintegration from the EU were sonesses that may have negative consequences – for instancesubstantial, such a political step is to be carefully scruti-

with TTIP and other pending free trade agreements. This isnized, at least according to the results of this study.

an example which is having particularly drastic economic
repercussions.

On the other hand, deeper economic integration in thecustoms union is a realistic policy option for Turkey, first

The most recent agreement between the EU and Turkeyof all because the country could expect a clear gain in wel-in the context of the current refugee crisis has given thefare and also because the negative trade effects caused bycountry the perspective of five new chapters in the EU

the problem of asymmetry would be compensated for. The

membership negotiations being opened. Setting aside thestudy findings project possible gains in welfare of up toquestion of whether and when Turkey can become a full EU

1.8 percent or USD 13 billion for GDP.

member – a question which is not assessed in this study,
since a comprehensive analysis would be required – it is

Basically, by deepening the customs union, Turkey has theclear from current policy decisions that long-term agree-opportunity to correct the problem relating to third coun-ments with unknown consequences have been entered into

tries arising from the Ankara Agreement. Inclusion of theby representatives both from the EU and from Turkey, andTurkish agricultural and services sectors in the Europeanthat very real and serious economic challenges also remain

Customs Union also offers economic opportunities for EU

unaddressed in the short term.

states, as it provides an incentive to remove the problem
of asymmetry in the Ankara Agreement. The agreement

Expressed in more general terms, this study shows indi-should be formally expanded in conjunction with free trade

rectly that negotiations on Turkey’s long-term full mem-agreements between the EU and third countries, so thatbership of the EU on the one hand, and the simultaneously

tariff-easing negotiated for European firms in third coun-initiated discussion regarding a possible economic connec-

tries can also apply to Turkish firms. With a deepening oftion for the country with Europe on the other hand, represent

the customs union Germany and the EU would experience

increasingly incompatible policy options in the light of EU

also a significant GDP growth.

trade policy.

The study demonstrates that such an adaptation of the

In both Europe and Turkey, the focus on initiating fullAnkara Agreement can be expected to boost Turkish wel-political EU membership for the country without address-

fare by up to 2.5 percent. This would correspond to a USD

ing the urgent need for reforms to the customs union in

17 billion rise in GDP. This growth would compare with athe short term threatens not only the economic integration

decrease in GDP of USD 20 billion if the EU and Turkey takeof Turkey in the EU achieved so far, but also the country’s

no action. These challenges to the EU-Turkey Customs

long-term political integration as a full EU member. One

Union, which is barely discussed in public, show that Tur-implication of this study is that the EU should concentrate

key is caught between the European and Asian economies

in the coming years on consolidating and then expand-

and at risk of drifting away from the EU, if the country is

ing Turkey’s economic integration in the EU. Consider-

not offered any realistic adaptation of the customs agree-

ing the EU’s current trade policy and the related economic

ment by the EU.

and political new order, not only in Europe but around theworld, such an economic and political goal is a great chal-

The institutional weaknesses shown above in the EU-Tur-

lenge in itself.

key Customs Union are ultimately a symptom of more serious and fundamental problems in Turkey’s integration pro-

Establishing a lasting and functioning customs agree-

cess into the EU. The main goal of this process is defined asment between the EU and Turkey has a clear goal: namely

75

Turkey’s EU integration at a crossroads

to prepare for the next step in European integration. Thisbottom-up approach in which there is no comprehensive
reform package (e.g. the acquis communautaire) to be implemented also represents an achievable economic and political goal. The integration process adopted during the refugee crisis is increasingly confronting Turkey with therequirement to balance very different conflicts between
reforms. An agreement on liberalizing visa regulations
between the EU and Turkey which is, for example, urgently
required for the integrated economy for smooth exchangeof managers, has been linked with further EU acquis chapters and the refugee crisis by the EU. Consequently, thelong-term political reforms that have been called for are
threatening to roll back the economic integration achieved
so far.
The complexity of the European integration process is aproblem not only for Turkey but is increasingly observedin other countries in various ways. The most recent developments and the position of the EU and its member statesshow a tendency towards “differentiated integration”
based on a new Europe. It can also be referred to as amulti-speed Europe. For current members, such a political change would partly mean rolling back integration
reforms. For example, the announcement of a referendum
on Britain’s continued membership of the EU could be thefirst serious development. For candidate countries such
as Turkey, a multi-speed EU means that integration is promoted primarily in the economic or political spheres firstof all, which is meaningful and achievable both from anational and from a European point of view. Based on thislogic, therefore, Turkey should aim to deepen the customs
union. The advantages of this policy are not only economic:
if implemented successfully, it offers politicians room formanoeuvre for further reforms in the future, in addition
to the welfare effects.

76Turkey’s EU integration at a crossroads

Appendix77

Turkey’s EU integration at a crossroads

Figure 36: Average trade effects of integration policies (agricultural sector)
0.12

Rice
Wheat
Cereals
Vegetables, fruits, nuts
OilseedSugar cane, sugar beet

1.09

0.05

0.14
0.11

0.72

0.31

0.99
0.39

0.08

0.64
0.23

0.43
0.37

0.26

0.76

0.03
0.26
0,00
0.04

1.21
0.37

0.81

0.24
0.22

0.49

0.05

0.45
0.19

0.11

1.23

0.35
0.34
0.23

0.61

0.27
0.19

Food productsn basic n comprehensive n customs union
Source: author’s own calculations and illustration

0.81

0.38

Sugar

Beverages and tobacco

0.79
0.66

0.02

Processed rice

78

0.94

0.31

0.11

Plant-based oils and fats
Dairy products

0.72

0.36

0.11

Meat: cattle, sheep, goats, horses
Meat products nec

0.31

0.11

Coal

Minerals nec

0.28

0.06

0,00
0,00

0.57

0.35
0.32

0.11

Wool, silk

0.97

0.21

0.09
0.12

Raw milk

0.11

1.55

0.38
0.39

0,00

Animal products nec

Gas

0.29

0,00

Cattle, sheep, goats, horses

Oil

0.55

0.04

Agricultural crops

Fishing

1.05

0,00

Plant-based fibres

Forestry

0.36

0.47
0.43

0.97
0.89

Asia’s Rise in the New World Trade Order

Figure 37: Average trade effects of integration policies (service sector)
0.54
0.51

Electricity
0.14

Gas manufacturing, distribution
Water
Construction
TradeTransport

0.37
0.26

0.00

0.54

0.00
0.00
0.04

0.35

1.46

0.04
0.13

2.12
0.51

1.38

1.21
0.16
0.17

Business services

0.20

Leisure and other services
0.01

1.66
0.38

0.01

Insurance

1.57

0.65

0.26

Communications

0.65
0.65

0.27

Air transport

Public administration /defence / education

0.77
0.54

Marine transport

Financial services

0.85

0.38
0.67
0.38
0.91
0.44

2.29

0.20
1.93

n basic n comprehensive n customs union
Source: author’s own calculations and illustration

79

Turkey’s EU integration at a crossroads

Table 34: Simple average MFN tariffs for selected countries (in percent)
MFN tariff vs. WTO (2013)
GTAP sector

Turkey

India

Japan

USA

0.00

Canada

1

Rice

7.70

33.78

3

Clothing

0.00

70.00

25.00

1.30

0.37

0.00

4

Vegetables, fruit, nuts

6.62

37.02

31.80

5.59

5.54

1.75

5

Oilseed

0.00

7.93

28.89

0.00

0.00

0.00

6

Sugar cane, sugar beet

5.10

19.30

30.00

0.00

0.00

0.00

7

Plant-based fibers

0.00

0.00

9.50

0.00

0.00

0.00

8

Agricultural crops

3.14

25.66

33.99

1.36

5.33

2.17

9

Cattle, sheep, goats, horses

2.82

54.48

30.00

0.00

0.75

0.00

10

Animal products

1.00

7.05

19.53

2.79

1.02

9.84

12

Wool, silkworm cocoons

0.00

0.00

5.00

0.00

0.04

0.00

13

Forestry

0.00

0.06

15.61

1.73

0.39

0.00

14

Fishing

9.18

25.41

24.38

3.59

0.13

0.57

15

Coal

0.00

0.00

5.87

0.65

0.00

0.00

16

Oil

0.00

0.00

0.00

0.00

0.00

17

Gas

0.00

5.00

2.05

0.00

0.00

18

Minerals

0.02

0.07

5.06

0.03

0.23

0.09

19

Meat: cattle, sheep, goats, horses

1.00

87.86

27.86

10.28

5.81

3.35

20

Meat products

7.86

75.66

33.68

6.65

3.09

40.97

21

Plant-based oils and fats

4.71

19.25

42.05

2.60

3.66

4.89

22

Dairy products

6.42

101.46

30.78

23.40

12.25

164.1823

Processed rice

45.00

70.00

0.00

11.20

0.00

24

Sugar

8.00

83.25

38.33

0.50

4.91

3.13

25

Food products

11.63

32.56

32.49

12.02

4.83

5.38

26

Beverages and tobacco

10.72

20.03

96.90

4.83

45.11

4.63

27

Textiles

6.65

6.70

9.88

5.66

8.09

3.18

28

Clothing

10.82

10.83

9.73

9.27

10.68

15.68

29

Leather products

6.24

6.30

10.00

12.82

6.73

6.23

30

Wood products

2.52

2.57

9.90

2.32

1.49

2.52

31

Paper products, publishing

0.10

0.10

8.56

0.04

0.03

0.07

32

Petroleum, coal products

0.72

0.77

5.26

1.23

0.80

1.28

33

Chemicals, rubber, plastic
products

4.43

4.45

8.41

2.04

2.57

1.05

34

Mineral products

3.53

3.59

9.36

1.15

3.05

1.63

35

Ferrous metals

0.41

4.47

6.65

0.23

0.34

0.02

36

Metals

2.75

2.97

5.75

1.77

2.17

0.01

37

Metal processing

2.73

2.83

9.80

1.13

2.00

2.47

38

Automobiles and parts

6.41

6.40

24.94

0.00

2.05

4.20

39

Transport equipment

2.30

2.66

18.38

0.00

2.08

5.62

40

Electronic equipment

2.32

2.39

4.34

0.00

0.72

0.64

41

Machinery and equipment

2.03

2.08

7.85

0.19

1.38

0.93

42

Manufacturing

2.74

2.77

9.66

1.89

2.72

3.98

Source: WITS – TRAINS Tariff Data80

Simple average
EU

0.00

Turkey’s EU integration at a crossroads

Table 35: Key basic data for relevant countries
GDP (WEO)
2015)

Exports(2011)

Imports(2011)(USD billions)(USD millions)(USD millions)

Most important
export sectors
Prim.

Sec.

Most important
import sectors
Tert.

Prim.

Sec.

Tert.

All

73 192173 540251 002

38

41

27

33

41

38

EU28

16 26682 811101 678

38

27

41

41

33

38

RoW

56 92790 729149 324

41

35

33

33

16

32

Germany

3 371

20 29328 309

38

27

28

41

38

33

Great Britain

2 865

11 189

6 787

41

27

38

33

41

38

France

2 423

9 817

10 162

38

41

27

38

33

41

Italy

1 819

9 492

13 288

38

27

35

41

33

38

Spain

1 221

4 995

6 981

28

27

38

38

33

41

Belgium

459

3 855

5 537

38

41

27

33

41

35

Romania

175

2 729

3 855

38

33

41

35

33

38

Poland

481

2 423

3 385

27

38

41

38

33

19

Netherlands

751

2 265

3 810

28

48

27

33

35

41

Bulgaria

47

2 199

2 769

27

41

33

36

32

35

Greece

193

1 940

1 786

32

33

27

32

33

7

Sweden

484

1 871

2 681

41

38

27

41

33

35

Austria

373

1 721

2 028

38

48

41

41

33

27

Denmark

291

1 287

1 060

28

27

50

41

33

35

Czech Republic

182

1 176

1 623

38

33

35

41

38

33

Slovenia

43

710

370

38

33

41

41

33

31

Ireland

227

691

874

47

54

41

33

41

53

Cyprus

19

680

50

32

33

41

35

36

50

Hungary

118

605

2 080

41

37

27

40

38

9

Finland

231

489

1 175

18

41

27

31

41

33

Slovakia

86

474

947

41

38

37

41

40

38

Portugal

198

447

565

38

55

27

33

41

31

Malta

9

430

56

39

32

41

35

27

39

Croatia

49

322

392

33

41

38

35

33

41

Luxembourg

58

241

328

52

55

33

52

35

53

Lithuania

42

199

234

27

41

38

35

2

26

Estonia

23

160

401

27

28

41

35

40

9

Latvia

28

109

145

41

27

50

35

2

30

1 573

1 182

2 129

36

55

4

15

35

4

Canada (CETA)
ASEAN

2 394

2 817

6 899

48

50

25

27

33

41

India

2 183

1 022

7 791

36

18

41

32

33

27

Japan

4 116

927

4 246

50

48

27

41

38

33

MERCOSUR

2 594

1 662

3 779

38

35

41

18

5

2

USA (TTIP)

17 9687 779

20 996

27

38

50

35

39

33

Source: IMF World Economic Outlook, GTAP9 and own illustration, RoW = all countries in the world except EU28

Table 35 contains key data on Turkish trade with the coun-from Turkey to the various countries in the table. The last six

tries included in this study. The figures are reported by Tur-

columns concern trade flows for the three most important

key so figures in the exports column give the trade flows

sectors. The sector classifications can be seen in Table 39.

81

Turkey’s EU integration at a crossroads

Table 36: Findings for scenario 1B): list of countries with export changes (in percent)Scenario 1B) Export growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)

EU28– 0.27– 0.500.10– 0.110.43– 0.19– 0.51

Austria0.61– 0.15

0.24

0.26

0.59

– 0.01

1.50

Belgium– 1.18– 0.82

0.10

0.10

0.25

– 0.36– 1.81

Bulgaria

0.49

0.12

0.19

0.11

0.20

0.01

1.12

Cyprus– 0.12

0.15

0.29

0.00

0.14

0.05

0.54

Czech Republic– 0.38– 0.91

0.12

0.29

0.55

– 0.06– 0.40Germany– 0.46– 0.530.18– 0.070.58– 0.30– 0.58Denmark

0.45

1.33

0.26

– 1.250.25– 0.60

0.36

Spain

– 0.40– 0.540.06– 0.410.60– 0.46– 1.15

Estonia0.07– 0.240.19– 0.350.25– 0.27– 0.37

Finland

0.18

0.45

– 0.80

0.23

0.42

0.14

0.54

France– 0.39– 1.120.18– 0.240.52– 0.13– 1.20Great Britain– 0.88– 0.73– 0.36– 0.170.27– 0.29– 2.00

Greece– 1.020.42

0.26– 0.350.24

0.36– 0.05

Croatia– 0.05– 0.26– 0.01– 0.210.35– 0.130.33

Hungary

0.08– 0.51

0.15

0.28

0.50

– 0.080.39

Ireland3.79– 0.06

0.15

0.05

0.39

0.05

4.20

Italy

0.67

– 0.280.29– 0.06

0.47

0.04

1.06

Lithuania– 0.680.20

0.17– 0.160.10– 0.25– 0.62Luxembourg

0.64

1.05

0.15

0.30

0.52

0.11

2.69

Latvia– 0.030.34– 0.040.45

0.12– 0.80– 0.02Malta– 0.90– 1.04– 0.17

0.09

0.14

0.28

– 1.62

Netherlands– 0.450.19

0.14– 0.25– 0.30– 0.46– 1.05

Poland– 0.31– 0.840.15– 0.150.28– 0.16– 1.01

Portugal

0.79– 0.370.23– 0.260.80– 0.26

0.87

Romania0.19– 0.39

0.20

0.18

0.28

0.03

0.48

Slovakia

0.01– 0.61

0.26

1.14

0.56

– 0.12

1.21

Slovenia– 1.00– 1.06

0.18

0.14

0.50

0.04

– 1.28

Sweden0.01– 0.020.08– 0.02

0.57

0.09

0.66

Canada– 0.820.22– 1.200.15– 0.220.19– 1.68India– 0.090.26– 0.16– 7.04– 0.140.17– 7.08Japan– 0.23– 2.82– 0.19– 0.04– 0.20– 0.20– 3.54USA– 1.280.13– 0.340.02– 0.220.18– 1.42

ASEAN– 0.050.04– 0.11– 0.13– 0.17– 0.72– 1.00Central Asia

– 0.220.04– 0.02– 0.05– 0.150.06– 0.35MERCOSUR

0.03

0.28

– 0.14– 0.01– 8.05

0.11– 7.74

Source: author’s own calculations

82

Turkey’s EU integration at a crossroads

Table 37: Findings for scenario 1B): list of countries with import changes (in percent)Scenario 1B) Import growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)

EU28– 0.77– 0.59– 0.14– 0.24– 0.26– 0.33– 2.27Austria– 1.25– 0.61– 0.21– 0.34– 0.44– 0.49– 3.22

Belgium

0.53– 0.34– 0.10– 0.47– 0.06– 0.18– 0.63

Bulgaria– 0.94– 0.45– 0.06– 0.180.01– 0.20– 1.82

Cyprus

– 0.65– 0.53– 0.34– 0.14– 0.09– 0.35– 2.06

Czech Republic– 0.57– 0.28– 0.12– 0.30– 0.33– 0.25– 1.80Germany– 0.69– 0.53– 0.15– 0.34– 0.39– 0.40– 2.45

Denmark– 1.31– 1.66– 0.39– 0.20– 0.19– 0.37– 3.95Spain– 0.54– 0.67– 0.08– 0.11– 0.28– 0.28– 1.94

Estonia– 0.44– 0.45– 0.09– 0.10– 0.030.03– 1.05Finland– 1.06– 1.00– 0.17– 0.30– 0.36– 0.34– 3.08

France– 0.68– 0.63– 0.23– 0.16– 0.29– 0.35– 2.31

Great Britain– 0.27– 0.450.55– 0.18– 0.10– 0.37– 0.89Greece– 1.02– 0.92– 0.43– 0.09– 0.30– 0.66– 3.38Croatia– 0.68– 0.49– 0.18– 0.08– 0.04– 0.14– 1.49Hungary– 0.57– 0.34– 0.02– 0.20– 0.11– 0.15– 1.40

Ireland– 4.11– 0.74– 0.21– 0.39– 0.35– 0.52– 6.01Italy– 1.51– 0.75– 0.36– 0.14– 0.30– 0.33– 3.30Lithuania– 0.44– 0.42– 0.13– 0.200.13– 0.10– 1.14Luxembourg– 0.96– 0.79– 0.21– 0.19– 0.300.03– 2.31

Latvia– 0.53– 0.56– 0.06– 0.270.02– 0.08– 1.44Malta– 1.24– 0.95– 0.63– 0.11– 0.46– 0.92– 4.07

Netherlands– 0.59– 0.67– 0.15– 0.200.05– 0.23– 1.77

Poland– 0.77– 0.54– 0.14– 0.20– 0.11– 0.27– 2.01

Portugal– 1.35– 0.84– 0.18– 0.07– 0.60– 0.35– 3.28

Romania– 0.79– 0.51– 0.17– 0.15– 0.04– 0.14– 1.78

Slovakia– 0.68– 0.23– 0.14– 0.55– 0.27– 0.15– 2.01

Slovenia– 0.81– 0.43– 0.21– 0.25– 0.24– 0.26– 2.06– 2.92

Sweden– 1.03– 0.64– 0.16– 0.37– 0.43– 0.42

Canada– 0.49– 0.582.72– 0.110.16– 0.20

1.45

India

– 1.15

3.06

0.05

0.86

0.18

– 0.40

2.57

Japan

– 0.67

13.05

0.10

0.06

0.19

0.01

12.60

USA

5.05

– 0.350.20– 0.070.18– 0.234.68– 1.04

Central Asia

– 0.83– 0.22– 0.030.02

0.23– 0.23MERCOSUR– 0.62– 0.410.07– 0.053.86– 0.20

2.52

ASEAN

– 0.50– 0.44

0.09

0.01

0.21

8.42

7.61

Source: author’s own calculations

83

Turkey’s EU integration at a crossroads

Table 38: Findings for scenario 1B): export growth in Turkey by sector (in percent)Scenario 1B) Export growth for Turkey (in %)Sector84

Target country

TTIP
EU28

RoW

CETA
USA

EU28

Combined

RoW

CAN

EU28

RoW

All FTA
partners

Rice– 5.26

0.29

3.66

0.69

– 0.10– 3.13– 24.45

20.37

0.93

Wheat

– 7.34– 0.130.89– 10.41– 0.104.29– 15.06

0.63

0.83

Cereals

0.08– 0.090.61

0.92– 0.04– 5.091.30– 0.080.37

Vegetables, fruit, nuts

– 0.34– 0.050.40

0.16– 0.03– 0.620.21

0.39– 0.13

Oilseed– 0.82– 0.260.09– 0.26– 0.110.53– 1.52– 0.78– 1.68Sugar cane, sugar beet

0.44

– 0.171.18

0.05– 0.08– 0.06– 7.25– 0.46

1.46

Plant– based fibers– 0.58

0.71

2.09

0.40

– 0.30– 4.83

1.81

5.62

1.90
– 1.47

Agricultural crops

0.44– 0.12– 0.300.53– 0.08– 5.080.09

9.97

Cattle, sheep, goats, horses

0.21– 0.081.56

0.13– 0.07– 1.92

0.15

0.55

1.86

Animal products

0.34

0.16

0.27

– 0.03– 0.07– 3.796.31

0.45– 7.44

Raw milk

0.91– 0.110.12

2.46– 0.14– 53.42

6.53

1.11

– 1.80Wool, silk

1.38

– 0.14– 1.010.18– 0.06– 0.801.10

0.29– 0.10Forestry0.32– 0.030.94

0.23– 0.12– 0.38

2.36

0.68

2.54

Fishing

0.65

0.29

1.42

0.45

– 0.03– 1.062.69

0.78– 0.14Coal– 4.290.22

2.58– 0.41– 0.181.05– 1.84

1.22

1.10

Oil

2.12

1.21

7.88

0.11

– 0.49

–

7.24

4.85

4.70

Gas

2.00

1.33

7.17

– 0.01– 0.40

2.50

6.81

4.12

8.34

Minerals

0.75– 0.291.16– 1.28– 0.186.54

0.83– 0.85– 6.66

Meat: cattle, sheep, goats, horses– 2.41– 0.180.78

0.06– 0.10– 0.84– 17.07– 0.450.45

Meat products

0.10

0.03

0.31

0.14

– 0.06– 1.87– 0.14– 0.18– 3.54

Plant– based oils and fats

– 2.71– 0.08– 3.03– 0.95– 0.11– 5.63– 8.11

0.01– 4.93

Dairy products

0.63

0.09

– 0.931.49– 0.20– 70.47

4.04

0.16

– 2.23

Processed rice

– 15.91– 0.16– 0.450.60– 0.24– 5.57– 46.812.53– 2.19Sugar– 0.170.05

0.76– 0.15– 0.06– 5.33– 12.96– 0.25– 0.47

Food products– 0.340.06– 0.450.07– 0.09– 9.55– 0.890.22– 2.68Beverages and tobacco

0.06– 0.06– 4.500.18– 0.04– 5.270.77– 0.03– 4.78

Textiles– 0.040.05– 2.960.30– 0.07– 5.80– 2.380.48– 2.90

Clothing

0.28– 0.05– 1.070.15– 0.04– 3.27– 1.110.24– 1.39

Leather0.86– 0.04– 7.530.25– 0.05– 13.87– 2.01– 0.16– 7.71

Wood

0.58

0.05

– 0.360.17– 0.02– 2.191.81

0.31– 1.80Paper, publishing

0.90

0.26

0.81

0.45

– 0.01– 1.273.27

0.79– 2.25

Petroleum, coal products– 2.69

0.31

0.20

0.22

– 0.03– 0.67– 1.570.51

2.49

Chemicals, rubber, plastic– 2.44– 0.08– 5.690.10– 0.05– 4.62– 2.030.20– 5.74Mineral products

0.44

0.01

– 1.070.21– 0.07– 1.471.86

0.36– 1.44

Ferrous metals

0.44– 0.21– 1.410.17– 0.05– 1.401.50– 0.35– 2.61

Metals– 2.44– 0.76– 1.64– 2.66– 0.40

4.55– 3.19– 1.84– 3.20

Metal products

0.33– 0.08– 0.750.12– 0.04– 1.451.56

0.03– 2.22

Automobiles and parts– 0.82– 0.23– 4.470.16– 0.16– 5.11– 2.24– 0.31– 9.46

Transport equipment– 2.39– 0.12– 3.03– 0.30– 0.17– 5.68– 2.99– 0.06– 3.91

Electronic equipment– 1.04– 0.140.06

0.00– 0.04– 0.62– 2.33– 0.28– 0.88

Machinery and equipment– 0.69– 0.03– 1.710.08– 0.04– 2.67– 0.350.20– 4.00

Manufacturing– 0.28– 0.08– 2.870.09– 0.06– 1.820.21– 0.28– 2.58

Turkey’s EU integration at a crossroads

Scenario 1B) Export growth for Turkey (in %)SectorTarget country

TTIP
EU28

RoW

CETA
USA

EU28

RoW

Combined
CAN

EU28

RoW

All FTA
partners

Electricity

1.28

0.24

2.24

0.52

– 0.08

2.09

4.20

0.59

– 1.99Gas manufacturing, distribution

0.92

0.06

2.28

0.29

– 0.05

2.06

3.05

0.49

2.33

Water

2.35

0.00

2.02

0.67

– 0.15– 1.58

6.23

0.49

3.37

Construction

1.36

0.22

1.41

0.40

– 0.02– 1.314.23

1.02– 2.04

Trade

3.26

0.01

2.33

0.49

– 0.15– 1.52

5.86

0.57

2.72

Transport

1.60

0.07

1.60

0.53

– 0.13– 0.38

4.87

0.43

1.96

Marine transport

0.59– 0.031.64– 0.31– 0.14– 6.56– 3.620.02– 3.45Air transport– 0.540.37– 0.61

0.12– 0.10– 5.39– 2.431.13– 4.05

Communications

2.05

0.16

2.24

0.62

– 0.16– 0.16

4.84

1.42

1.45

Financial services

2.59

0.20

2.91

0.57

– 0.15

0.56

6.12

1.14

3.07

Insurance

1.72– 0.021.80

0.45– 0.17– 0.29

4.72

0.19

0.70

Business services

3.15

0.24

2.29

0.52

– 0.12– 0.16

5.81

0.92

0.42

Leisure and other services

1.20

0.12

0.99

0.41

– 0.13– 2.70

4.37

0.55

0.13

Public administration / law / health / education

2.51

0.33

2.44

0.67

– 0.23

0.17

6.40

3.25

2.55

Source: author’s own calculations

85

Turkey’s EU integration at a crossroads

Table 39: Findings for scenario 2C): output growth for Turkey by sector (in percent)
SectorScenario 2C)
Output growth for Turkey(in %)

GTAP
sectornumber

SectorScenario 2C)
Output growth for Turkey(in %)

1

Rice– 53.52

30

Wood– 2.932

Wheat– 19.72

31

Paper, publishing– 1.67

3

Cereals– 27.05

32

Petroleum, coal products

6.86

4

Vegetables, fruit, nuts

4.18

33

Chemicals, rubber, plastic– 5.56

5

Oilseed– 10.93

34

Mineral products– 1.21GTAP
sectornumber

6

Sugar cane, sugar beet

7

Plant– based fibers

1.30

35

Ferrous metals– 3.19– 16.84

36

Metals– 7.778
9Agricultural crops– 6.01

37

Metal products– 1.59Cattle, sheep, goats, horses– 51.17

38

Automobiles and parts– 4.93

10

Animal products– 7.1339

Transport equipment– 4.1011

Raw milk– 3.97

40

Electronic equipment

0.91

12

Wool, silk

– 8.8841

Machinery and equipment– 4.7013

Forestry– 0.1942

Manufacturing

1.97

14

Fishing

9.29

43Electricity

0.31

15

Coal

– 17.98

44

Gas manufacturing, distribution

16

Oil

– 52.42

45

Water

3.64

17

Gas

– 58.47

46

Construction

2.89

18

Minerals– 6.79

47

Trade

2.45

19

Meat: cattle, sheep, goats, horses– 20.55

48

Transport

26.33

20

Meat products

2.85

49

Marine transport

15.51

21

Plant– based oils and fats

1.03

50

Air transport

35.60

22

Dairy products– 23.1751

Communications

4.07

23

Processed rice

– 52.1152

Financial services

24

Sugar

– 0.0553

Insurance– 10.49

3.46

25

Food products

5.73

54

Business services– 1.0926

Beverages and tobacco– 3.5355

Leisure and other services

21.64

27

Textiles– 4.8356

Public administration /law / health / education

1.05

57

Housing

3.15

28

Clothing

0.59

29

Leather

2.35

Source: author’s own calculations

86– 11.91

Turkey’s EU integration at a crossroads

Table 40: Findings for scenario 2C): changes in Turkish exports by sector
GTAP
sectornumber

SectorScenario 2C)∆exports TUR –RoW (%)

Scenario 2C)∆exports TUR –EU28 (%)

GTAP
sectornumber

SectorScenario 2C)∆exports TUR –RoW (%)

Scenario 2C)∆exports TUR –EU28 (%)

1

Rice-14.91

588.2129

Leather

0.72

0.70

2

Wheat

2.60

415.58

30

Wood

-6.69

-7.90

3

Cereals-1.74

161.7731

Paper, publishing-10.68-11.17

4

Vegetables, fruit, nuts

-4.53

45.76

32

Petroleum, coal products

-4.88

-5.33

5

Oilseed

-3.29

72.69

33

Chemicals, rubber, plastic

-8.64

-8.87

6

Sugar cane, sugar beet

-3.99

12.31

34

Mineral products

-8.23

-8.67

7

Plant-based fibers-28.68-1.20

35

Ferrous metals

-2.74

-2.99

8

Agricultural crops

-5.89

25.36

36

Metals

-8.80

-8.85

9

Cattle, sheep, goats, horses-0.36

387.54

37

Metal products

-4.73

-5.21

10

Animal products

1.97

162.3038

Automobiles and parts

-7.39

-7.39

11

Raw milk-0.74

107.71

39

Transport equipment

-9.68

-9.62

12

Wool, silk

5.23

183.93

40

Electronic equipment

-4.57

-4.60

13

Forestry-11.57-11.56

41

Machinery and equipment

-7.25

-7.47

14

Fishing

-9.92

70.14

42

Manufacturing

-4.54

-4.71

15

Coal

-27.51-27.54

43

Electricity-11.06108.7416

Oil-58.65-58.91

44

88.57

Gas

-58.54-58.47

Gas manufacturing,
distribution-12.92

17
18

Minerals-11.57-11.5845

Water-18.00-17.8946

Construction-15.00-15.1947

Trade-16.61260.0719

Meat: cattle, sheep, goats,horses

19.09

126.5520

Meat products

3.66

145.1348

Transport-15.60573.6421

Plant-based oils and fats

0.39

210.6549

Marine transport-15.56288.7722

Dairy products-6.53

880.9350

Air transport-12.88233.9423

Processed rice

15.61

1032.23

51

Communications-16.36337.54

24

Sugar

-5.05

141.3552

Financial services-17.95174.5725

Food products

0.59

190.3553

Insurance-16.9262.83

26

Beverages and tobacco-1.33

143.4854

Business services-16.14109.4527

Textiles-10.04-10.2455

Leisure and other services-12.45736.4228

Clothing

-4.42

-4.42

56

Public administration / law /health / education-16.54478.67

Source: author’s own calculations

87

Turkey’s EU integration at a crossroads

Table 41: Findings for scenario 3.2A): list of countries with export changes (in percent)Scenario 3.2A)
Export growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)

EU28

70.41

69.58

70.12

69.94

70.60

69.72

70.95

Austria

126.31

123.93124.02124.09125.12123.58128.95

Belgium

58.64

58.61

59.20

59.64

58.93

58.51

59.20

Bulgaria

87.58

86.95

87.17

86.96

86.96

86.83

88.08

Cyprus

18.40

18.31

18.60

18.09

18.32

18.07

18.99

Czech Republic

20.28

19.32

20.34

20.61

21.03

20.26

20.33

Germany

84.06

82.93

83.76

83.81

84.74

83.29

85.22

Denmark

103.52106.10102.56100.97102.52100.98105.94

Spain

46.42

46.22

46.71

46.30

47.56

46.19

45.96

Estonia

32.51

31.96

32.19

31.87

32.38

31.78

32.38

Finland

61.97

62.08

60.32

61.23

61.79

61.10

63.85

France

44.43

43.74

44.91

44.37

45.32

44.52

44.15

Great Britain

103.72103.08103.59103.53104.04103.29103.60

Greece

49.06

50.93

50.73

49.80

50.70

50.89

50.09

Croatia

24.13

23.58

23.82

23.62

24.24

23.78

24.65

Hungary

46.30

45.76

46.11

46.29

46.54

45.66

46.72

Ireland140.81129.63130.34130.30130.83130.48141.93

Italy

41.21

39.66

40.27

39.72

40.44

39.75

41.79

Lithuania

48.86

49.52

49.53

49.43

49.30

49.09

48.94

Luxembourg

212.11

213.71209.24210.08211.37210.68217.56

Latvia

73.77

74.27

73.08

74.33

73.44

71.19

72.96

Malta

2.51

2.14

2.93

2.98

3.13

3.23

1.71

134.65134.39133.96133.42132.77133.16134.98Netherlands
Poland

67.23

66.16

67.29

67.05

67.52

66.95

66.81

Portugal

141.10138.87138.72138.06141.09137.93142.92

Romania

9.01

8.25

8.89

8.83

8.97

8.73

9.06

Slovakia

15.95

14.92

15.91

16.88

16.32

15.50

17.18

Slovenia

6.15

5.85

7.01

6.94

7.34

6.83

5.79

Sweden111.10110.46110.15110.43111.26110.42113.85

Canada– 9.24– 8.55

25.81– 8.55– 8.78– 8.42

25.07

India

– 9.30– 9.19– 9.4536.29– 9.41– 9.12

35.98

Japan

– 10.79

33.96– 10.93– 10.87– 10.83– 10.83

33.04

Austria

25.22– 9.41– 9.74– 9.47– 9.57– 9.20

24.62

ASEAN

– 10.70– 10.85– 10.85– 10.94– 10.77

26.48

25.53

MERCOSUR– 8.65– 8.57– 8.89– 8.8362.78– 8.61

63.02

Central Asia

– 6.83– 6.96– 6.92– 7.02– 6.94– 6.81– 7.11

Source: author’s own calculations

88Turkey’s EU integration at a crossroads

Table 42: Findings for scenario 3.2A): list of countries with import changes (in percent)Scenario 3.2A)
Import growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)

EU28

37.96

39.16

39.90

39.70

39.32

39.15

35.02

Austria

64.70

66.76

67.43

67.29

66.39

66.71

60.82

Belgium

25.59

25.52

26.03

25.53

26.07

25.64

23.65

Bulgaria

91.08

93.72

94.00

93.86

93.23

93.19

88.27

Cyprus156.13

157.32

157.76158.80157.48156.74149.69Czech Republic

22.03

22.68

23.10

22.89

22.87

22.67

20.31

Germany

21.66

22.58

23.28

23.05

22.88

22.61

18.98

Denmark

92.49

92.36

95.49

96.19

95.80

95.01

85.73

Spain

39.87

40.38

41.39

41.33

40.92

40.60

37.35

Estonia

19.31

19.72

20.28

20.32

19.77

20.34

18.11

Finland

13.03

13.59

14.56

14.54

14.33

14.28

10.67

France

38.82

39.74

40.50

40.73

39.79

40.05

35.63

Great Britain

64.32

65.45

66.80

66.24

66.20

65.35

62.42

Greece

48.85

51.51

52.05

52.63

51.44

51.43

44.70

Croatia

9.56

10.36

10.82

11.01

11.15

10.74

8.80

Hungary

64.37

65.16

65.80

65.58

62.07

65.28

59.36

Ireland

69.91

78.24

79.14

79.01

77.93

78.17

65.53

Italy

26.45

28.43

29.02

28.33

28.42

27.56

22.34

Lithuania

189.35201.90201.63202.07

195.54201.98181.71

Luxembourg

127.93130.12131.29131.69131.11131.67125.97154.64

Latvia162.09172.09172.62172.42167.14172.63

Malta

89.43

90.60

91.40

92.86

91.96

90.51

82.37

Netherlands

70.27

71.79

72.66

72.69

72.22

72.17

67.38

Poland

72.69

73.61

74.22

74.20

72.85

73.77

69.62

Portugal

35.62

36.91

37.96

38.24

37.38

37.27

32.43

Romania

24.03

25.07

25.50

25.47

25.16

24.97

21.85

Slovakia

14.19

14.99

15.22

14.78

15.14

15.02

12.56

Slovenia

22.21

23.05

23.45

23.51

23.54

23.15

20.55

Sweden

23.31

24.22

24.95

24.78

24.67

24.36

20.85

Canada

3.87

6.32

37.23

6.91

7.08

6.63

32.53

India

7.42

9.62

9.94

18.49

9.95

9.25

14.00

Japan

3.28

44.56

5.11

5.17

5.38

4.81

42.78

Austria

37.88

5.32

5.73

5.74

5.77

5.31

36.79

Central Asia

2.51

6.21

5.62

6.72

6.69

6.16

1.45

MERCOSUR– 5.34– 3.76– 3.36– 3.5250.91– 4.54

44.38

ASEAN

4.24

5.18

5.48

5.41

5.52

40.89

37.33

Source: author’s own calculations89

Turkey’s EU integration at a crossroads

Table 43: Findings for scenario 3.2B): list of countries with export changes (in percent)Scenario 3.2B)
Export growthfor Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

EU28

71.10

69.77

70.15

69.94

70.60

69.72

71.77

Austria

127.21

124.11124.05124.09125.12123.58129.96

Belgium

59.50

58.81

59.25

59.64

58.93

58.51

60.17

Bulgaria

87.90

87.08

87.19

86.96

86.96

86.83

88.50

Cyprus

19.36

18.39

18.70

18.09

18.32

18.07

20.07

Czech Republic

21.57

19.50

20.45

20.61

21.03

20.26

21.85

Germany

84.79

83.12

83.78

83.81

84.74

83.29

86.07

Denmark

103.91106.25102.54100.97102.52100.98106.39

Spain

47.09

46.38

46.75

46.30

47.56

46.19

46.76

Estonia

32.91

32.07

32.20

31.87

32.38

31.78

32.85

Finland

62.89

62.23

60.37

61.23

61.79

61.10

64.89

France

45.20

43.99

44.96

44.37

45.32

44.52

45.15

Great Britain

104.24103.27103.60103.53104.04103.29104.18Greece

49.75

51.06

50.79

49.80

50.70

50.89

50.91

Croatia

24.78

23.73

23.87

23.62

24.24

23.78

25.48

Hungary

47.00

45.94

46.17

46.29

46.54

45.66

47.58

Ireland140.69129.81130.28130.30130.83130.48141.81

Italy

41.89

39.86

40.31

39.72

40.44

39.75

42.66

Lithuania

49.52

49.67

49.56

49.43

49.30

49.09

49.72

Luxembourg

211.61

213.82209.12210.08211.37210.68216.86

Latvia

74.26

74.45

73.10

74.33

73.44

71.19

73.61

Malta

3.23

2.31

2.98

2.98

3.13

3.23

2.60

135.47134.53133.97133.42132.77133.16135.79Netherlands
Poland

67.98

66.34

67.33

67.05

67.52

66.95

67.70

Portugal

141.89139.10138.75138.06141.09137.93143.85

Romania

9.83

8.42

8.97

8.83

8.97

8.73

10.10

Slovakia

17.05

15.11

16.01

16.88

16.32

15.50

18.54

Slovenia

6.88

6.19

7.08

6.94

7.34

6.83

6.91

Sweden111.52110.66110.15110.43111.26110.42114.37

Canada– 8.35– 8.4253.42– 8.55– 8.78– 8.42

54.26

India

– 8.56– 9.03– 9.3636.29– 9.41– 9.12

37.67

Japan

– 10.37

32.88– 10.93– 10.87– 10.83– 10.83

32.80

USA

44.54

– 9.29– 9.71– 9.47– 9.57– 9.2044.09

Central Asia

– 5.52– 6.82– 6.80– 10.94– 10.77

26.48– 5.60

MERCOSUR– 8.11– 8.37– 8.84– 8.8362.78– 8.61

64.57

ASEAN

– 10.13– 10.78– 10.82– 7.02– 6.94– 6.81

26.32

Source: author’s own calculations

90

Combined (1– 6)

Turkey’s EU integration at a crossroads

Table 44: Findings for scenario 3.2B): list of countries with import changes (in percent)Scenario 3.2B)
Import growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1–6)

EU28

36.61

38.69

39.84

39.70

39.32

39.15

33.29

Austria

64.10

66.45

67.43

67.29

66.39

66.71

60.01

Belgium

24.46

25.17

25.97

25.53

26.07

25.64

22.19

Bulgaria

88.43

93.57

93.86

93.86

93.23

93.19

85.59

Cyprus155.38157.58157.88158.80157.48156.74149.45

Czech Republic

21.39

22.05

23.08

22.89

22.87

22.67

19.09

Germany

20.34

21.96

23.21

23.05

22.88

22.61

17.12

Denmark

92.17

92.25

95.56

96.19

95.80

95.01

85.46

Spain

38.92

39.82

41.37

41.33

40.92

40.60

35.94

Estonia

17.73

19.45

20.11

20.32

19.77

20.34

16.17

Finland

12.26

13.36

14.45

14.54

14.33

14.28

9.63

France

37.29

39.18

40.44

40.73

39.79

40.05

33.63

Great Britain

63.56

65.04

66.81

66.24

66.20

65.35

61.36

Greece

45.65

51.36

51.94

52.63

51.44

51.43

41.52

Croatia

7.72

10.03

10.63

11.01

11.15

10.74

6.52

Hungary

63.52

64.77

65.78

65.58

62.07

65.28

58.25

Ireland

68.89

78.05

79.15

79.01

77.93

78.17

64.48

Italy

25.51

28.04

28.98

28.33

28.42

27.56

21.12

Lithuania

152.26201.83

199.35202.07

195.54201.98145.35

Luxembourg

129.13130.01131.48131.69131.11131.67127.36125.99Latvia132.98171.92

170.77172.42167.14172.63

Malta

88.68

90.45

91.46

92.86

91.96

90.51

81.63

Netherlands

68.61

71.45

72.55

72.69

72.22

72.17

65.40

Poland

71.56

72.92

74.16

74.20

72.85

73.77

67.87

Portugal

34.96

36.74

37.98

38.24

37.38

37.27

31.68

Romania

22.28

24.67

25.36

25.47

25.16

24.97

19.70

Slovakia

13.33

14.52

15.16

14.78

15.14

15.02

11.26

Slovenia

21.51

22.74

23.42

23.51

23.54

23.15

19.58

Sweden

22.72

23.99

24.90

24.78

24.67

24.36

20.04

Canada

1.17

6.19

67.43

6.91

7.08

6.63

57.05

India

6.40

9.46

9.91

18.49

9.95

9.25

12.79

Japan

2.23

68.03

5.07

5.17

5.38

4.81

64.48

USA

62.97

5.03

5.43

5.74

5.77

5.31

60.80

MERCOSUR– 7.80– 3.88– 3.46

6.72

6.69

6.16

40.35

ASEAN

3.37

4.99

5.31

– 3.5250.91– 4.5435.97

Central Asia

– 0.33

6.02

4.75

5.41

5.52

40.89

– 2.09Source: author’s own calculations

91

Turkey’s EU integration at a crossroads

Table 45: Findings for scenario 4C): list of countries with export changes (in percent)Scenario 4C)
Export growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)

EU28

5.48

5.01

5.61

– 6.91– 6.28– 7.05– 1.42Austria

12.32

11.17

11.55

2.07

2.67

1.72

2.22

Belgium

2.90

3.13

4.02

– 8.95– 8.80– 9.43– 3.11

Bulgaria

9.11

8.42

8.59

– 2.91– 2.65– 3.03

4.28

Cyprus

41.05

40.84

41.02

16.28

16.64

16.36

41.11

Czech Republic– 2.80– 3.63– 2.61– 16.20– 15.80– 16.45– 5.10Germany

6.22

5.83

6.59

– 5.57– 4.82– 5.87– 0.74

Denmark

10.06

10.91

9.57

– 0.680.62– 0.61– 4.89Spain– 1.05– 1.35– 0.75– 14.22– 13.22– 14.31– 6.63

Estonia– 1.24– 1.84– 1.29– 15.55– 14.88– 15.50– 4.00Finland

1.47

1.41

0.40

– 9.64– 9.19– 9.71– 2.26

France0.46– 0.370.83– 12.83– 12.06– 12.77– 4.64– 4.90Great Britain

6.43

6.32

6.69

– 3.55– 2.98– 3.81

Greece

23.37

25.43

25.17

5.23

6.24

6.22

20.78

Croatia– 28.19– 28.54– 28.37– 28.82– 28.29– 28.72– 48.80

Hungary

10.60

9.75

10.37

– 3.54– 3.22– 3.99

4.12

Ireland

16.45

11.91

12.15

5.65

6.22

5.66

3.65

Italy

5.65

4.39

4.96

– 8.71– 8.08– 8.68– 0.72

Lithuania

9.40

9.85

9.94

– 4.23– 3.81– 4.30

6.03

Luxembourg

42.12

42.42

41.33

38.71

39.49

38.62

9.95

Latvia

17.62

17.71

17.19

6.03

5.78

4.11

4.88

Malta

12.86

12.35

13.26

– 4.26– 4.05– 4.0811.31

Netherlands

4.84

5.17

5.20

– 2.99– 3.01– 3.27– 4.63

Poland

6.15

5.33

6.34

– 7.57– 7.01– 7.58

1.50

Portugal

12.40

10.90

11.47

– 0.181.14– 0.41

1.31

Romania

2.78

1.93

2.52

– 13.01– 12.79– 13.10

2.33

Slovakia

1.55

0.63

1.49

– 12.63– 12.91– 13.62

0.98

Slovenia– 0.43– 0.240.88– 16.22– 15.76– 16.26– 1.93Sweden

3.06

2.77

2.87

– 7.50– 6.80– 7.46– 2.94

Canada– 0.33

0.28

38.30

0.47

0.34

0.57

39.35

India

0.05

0.08

– 0.2448.42– 0.11

0.06

50.42

Japan

3.52

55.83

3.19

4.14

4.32

4.10

57.16

USA

41.69

1.85

1.44

1.94

1.93

2.18

42.80

MERCOSUR

1.09

1.09

0.70

0.39

77.64

0.58

81.39

ASEAN

3.32

3.02

2.97

3.84

4.18

46.21

46.31

Central Asia

0.39

0.12

0.13

– 0.13

0.07

0.05

1.06

Source: author’s own calculations

92

Turkey’s EU integration at a crossroads

Table 46: Findings for scenario 4C): list of countries with import changes (in percent)Scenario 4C)
Import growth for Turkey

TTIP

Japan

CETA

India

MERCOSUR

ASEAN

Combined (1– 6)

EU28

5.68

6.60

7.24

– 4.96– 5.24– 5.30– 0.66Austria

8.18

9.49

10.01

– 1.24– 1.89– 1.56– 0.80Belgium

0.43

0.14

0.51

– 12.71– 12.40– 12.65– 2.88

Bulgaria

16.77

18.79

19.06

4.69

4.21

4.37

8.64

Cyprus

14.72

15.55

15.92

7.84

7.14

7.02

– 4.91

Czech Republic– 2.54– 2.02– 1.59– 13.30– 13.36– 13.46– 5.96

Germany

1.70

2.38

3.04

– 8.83– 8.97– 9.14– 3.15

Denmark

5.76

5.96

7.58

– 1.57– 1.80– 2.08– 7.75

Spain

1.47

1.91

2.74

– 10.13– 10.35– 10.57– 3.65

Estonia– 21.32– 21.00– 20.63– 27.18– 27.69– 27.14– 23.57

Finland– 4.30– 3.76– 2.88– 14.91– 15.09– 15.07– 7.79France

9.67

10.44

11.12

– 0.65– 1.40– 1.092.74

Great Britain

3.00

3.49

4.67

– 6.75– 6.80– 7.20– 5.13

Greece

37.77

40.15

40.61

19.91

18.99

19.09

28.94

Croatia– 37.52– 37.04– 36.76– 35.80– 35.72– 35.95– 57.73

Hungary

13.57

14.29

14.79

5.08

2.12

4.92

6.02

Ireland

14.48

19.96

20.64

7.22

6.72

6.77

3.04

Italy

9.46

11.37

11.91

– 2.92– 2.78– 3.48

2.86

Lithuania

15.42

19.85

19.91

15.95

13.12

15.95

8.84

Luxembourg

14.22

15.46

16.09

7.54

7.23

7.63

– 8.89Latvia

11.04

14.62

15.02

9.94

7.63

10.05

5.17

Malta

2.83

3.92

4.30

– 6.97– 7.35– 7.96– 10.90

Netherlands

10.18

11.07

11.72

0.09

– 0.10– 0.18

3.57

Poland

37.30

38.13

38.73

28.57

27.10

28.27

23.73

Portugal

7.72

8.89

9.73

– 4.32– 4.93– 4.89– 0.23

Romania

0.44

1.31

1.68

– 9.52– 9.69– 9.81– 2.63

Slovakia– 10.83– 10.20– 9.91– 20.34– 20.12– 20.16– 13.85

Slovenia

1.34

2.16

2.56

– 10.07– 10.11– 10.28– 3.12

Sweden– 8.32– 7.55– 6.96– 16.89– 17.00– 17.12– 13.58

Canada– 3.61– 1.5527.36– 0.94– 0.87– 1.19

22.36

India

– 7.82– 6.15– 5.82

4.89– 3.36– 3.90– 2.69Japan– 1.15

38.18

0.58

4.87

5.02

4.53

36.03

USA

27.26

– 2.98– 2.53– 1.05– 1.16– 1.42

25.12

ASEAN

– 5.41– 4.57– 4.23– 2.97– 2.98

30.65

24.89

Central Asia

– 7.28– 4.13– 4.49– 4.03– 4.18– 4.50– 9.01MERCOSUR– 8.74– 7.06– 6.66– 6.5349.79– 7.4942.89

Source: author’s own calculations

93

Turkey’s EU integration at a crossroads

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Possible additional trade flows after

CESifo Working Paper No. 5150.

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Intensity of economic integration andCaliendo, L. and F. Parro. 2015: “Estimates of the Trade andFigure 3:

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Costinot, A., A. Rodriguez-Clare: “Trade Theory with

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Figure 10: Top five Turkish import countries /outside the EU

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Figure 12: Turkish exports to EU countries
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23
24
24

Figure 15: Turkish intermediate goods imports
to EU countries

25

Figure 16: Trade in intermediate and finishedproducts in the metals sector

26

Figure 17: Turkish share of added value inFelbermayr, G., Heid, B., Larch, M., Yalcin, E. (2015):“Macroeconomic potentials of transatlantic free trade:a high resolution perspective for Europe and the world“,
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30
32

Figure 22: Tariff distribution for agricultural andindustrial goods

94

31

Turkey’s EU integration at a crossroads

List of tables
Figure 23: Average tariffs in the EU’s future
western partner countries

Table 1:Timeline of previous EU-Turkey

Table 2:

EU free trade agreements (FTAs)
currently under negotiation

12

Table 3:Long-term welfare effects after the TTIP

16

35

Table 4:Intra-industry trade between the

37

Table 5:

Bilateral tariffs between Turkey

41

Table 6:Weighted average MFN tariffs

42

Table 7:47

Table 10:Findings for scenario 2C):

33

Figure 24: Average tariffs in the EU’s future FTAs
(emerging nations)33

Figure 25: Tariff circumvention by third countries
in free trade agreements

integration efforts

Figure 26: Non-tariff trade measures 1995-2015,
TurkeyEU and Turkey (USD thousands)

Figure 27: Average effects of various
integration policies

and the EU (in percent)Figure 28: Average trading effects ofintegration policies (industrial goods)
Figure 29: Changes in Turkish industrial exports
to the EU28
Figure 30: Changes in Turkish exports
to the EU28
welfare and trade changes
across all scenarios

34
44

Table 8:Findings for scenario 1B)

46

Table 9:Findings for scenario 2

50

sectoral changes in output

70
71

sectoral changes in exports

50

Findings for scenario 3.1A)

52

Table 13:

Findings for scenario 3.1A):
sectoral changes in exports (in percent)72

Table 14:

Findings for scenario 3.1A) compared73

Table 15:

Findings for scenario 3.1A) compared73

Table 16:

Findings for scenario 3.1A):

78

Table 17:

Net free trade agreement effects on Turkish

79

Table 18:

Sectoral net FTA effects of a freeFigure 34: Comparison of export changes inscenarios 1B), 3.1A) and 4B)

to scenario 2C) (in percent)Figure 35: Comparison of import changes inscenarios 1B), 3.1A) and 4B)

to scenario 2C)

Figure 36: Average trade effects of integration
policies (agricultural sector)

list of countries with changes to exports

Figure 37: Average trade effects of integration
policies (service sector)

50

Findings for scenario 2C):

Table 12:Figure 33: Comparison of welfare changes inscenarios 1B), 3.1A) and 4B)

31

Findings for scenario 1A)

Table 11:

Figure 32: Comparison of welfare changes

27

for selected countries (in percent)48

Figure 31: Comparison of all scenarios for

10exports under various scenarios
trade agreement on Turkish exports
Table 19:

Findings for scenario 3.1A) compared

Table 20:

Findings for scenario 3.1A) comparedto scenario 2C)
to scenario 2C)

53
53
53
54
55
55
56
56

95

Turkey’s EU integration at a crossroads

Table 21:

Table 42:

Findings for scenario 3.1A):

Findings for scenario 3.2A): list of countries
with import changes (in percent)list of countries with import changes

57

Table 22:

Findings for scenario 3.2A)

59

Table 23:

Findings for scenario 3.2B)

61

list of countries with export changes

Table 24:

Findings for scenario 4A)

62(in percent)

Table 25:

Findings for scenario 4B)

63

Table 26:

Findings for scenario 4B):
sectoral changes in exports

Table 27:
Table 28:
Table 29:64

Table 31:

Findings for scenario 4B) compared

Table 32:

Findings for scenario 4B):
list of countries with import changes

67

Table 33:

Findings for scenario 4C):

68

Table 34:

Simple average MFN tariffs for selected
countries (in percent)80

Table 35:

Key basic data for relevant countries

81

Table 36:

Findings for scenario 1B): list of countries
with export changes (in percent)

Table 37:

Findings for scenario 1B): list of countries

Table 38:

Findings for scenario 1B): export growth

Table 39:

Findings for scenario 2C): output growthwith import changes (in percent
in Turkey by sector (in percent)for Turkey by sector (in percent)
Table 40:

Findings for scenario 2C):

Table 41:

Findings for scenario 3.2A): list of countries

changes in Turkish exports by sector
with export changes (in percent)96

with export changes (in percent)92

list of countries with import changes(in percent)65

Findings for scenario 4B) comparedto scenario 4A)

91

Findings for scenario 4C): list of countries

Table 46: Findings for scenario 4C):
65

Table 30:

to scenario 4A)

90

Findings for scenario 3.2B):
in percent)

Table 45:

Findings for scenario 4B):
list of countries with export changes

89

Findings for scenario 3.2B):

list of countries with import changes (Findings for scenario 4B) comparedto scenario 4A)

Table 44:

64

Findings for scenario 4B) comparedto scenario 4A)

Table 43:

66
66

82
83
84
86
87
88

93

Turkey’s EU integration at a crossroads

List of abbreviations
ASEAN

Association of Southeast Asian Nations

MFN

Most Favoured Nation

AUT

Republic of Austria

MLT

Republic of Malta

BEL

Kingdom of Belgium

NAFTA

North American Free Trade Agreement

BGR

Republic of Bulgaria

NLD

Kingdom of the Netherlands

CAN

CanadaPOL

Republic of Poland

CETA

Comprehensive Economic and

PRT

Republic of Portugal

Trade Agreement (EU-Canada)

ROU

Republic of Romania

CU

Customs Union

RoW

Rest of the World

CYP

Republic of Cyprus

SVK

Slovak Republic

CZE

Czech Republic

SVN

Republic of Slovenia

DEU

Federal Republic of Germany

SWE

Kingdom of Sweden

DNK

Kingdom of Denmark

TTIP

Transatlantic Trade and

EEA

European Economic Area

EFTA

European Free Trade Association

UAE

United Arab Emirates

ESP

Kingdom of Spain

USA

United States of America

EST

Republic of Estonia

USD

United States Dollar

EU

European Union

EU28

European Union 28

FIN

Republic of Finland

FRA

Republic of France

FTA

Free Trade Agreement

GBR

United Kingdom of Great Britain

Investment Partnership (EU–USA)and Northern IrelandGDP

Gross Domestic Product

GL-Index

Grubel Lloyd Index

GRC

Hellenic Republic

HRV

Republic of Croatia

HUN

Republic of Hungary

IMF

International Monetary Fund

IND

Republic of India

IRL

Republic of Ireland

ITA

Republic of Italy

JPN

Japan

LTU

Republic of Lithuania

LUX

Grand Duchy of Luxembourg

LVA

Republic of Latvia

MERCOSUR Southern Common Market

97

Turkey’s EU integration at a crossroads

Imprint© 2016 Bertelsmann Stiftung
Bertelsmann StiftungCarl-Bertelsmann-Straße 256
33311 Gütersloh
Phone +49 5241 81-0
www.bertelsmann-stiftung.de

Responsible
Dr. Ulrich Schoof

Authors
Dr. Erdal Yalcin (Project Leader),Dr. Rahel Aichele,
Prof. Gabriel Felbermayr

DesignDietlind Ehlers, Bielefeld

Photo
Shutterstock / CANARAN

April 201698

Turkey’s EU integration at a crossroads

99Address | Contact
Bertelsmann StiftungCarl-Bertelsmann-Straße 256
33311 Gütersloh
Phone +49 5241 81-0
GED-Team
Programm Nachhaltig Wirtschaften
Phone +49 5241 81-81353
ged@bertelsmann-stiftung.de
www.ged-project.dewww.bertelsmann-stiftung.de