Turkey’s agricultural polices with those of the EU, ending in Turkey’s adoption of the EUs Common Agricultural Policy. The remaining scenarios examine the outcomes for an alternative policy trajectory, in which EU-Turkey agricultural trade remains outside the Customs Union, but FTAs are concluded for nonagricultural goods. The second scenario looks at the consequences of fully including Turkey in a set of EU Free Trade Agreement (EU FTA) agreements. The third looks at the consequences for Turkey as the EU reaches FTAs with Korea and the United States.

The analysis uses the multiregional, multi-sector GTAP model, a computable general equilibrium model (CGE) hosted at Purdue University. The GTAP CGE model is used in this study based on GTAP data V8.1 with a reference year of 2007. Model regions differ between the agricultural policy simulations under Scenario 1, and the remaining two scenarios. In the first, the world economy is aggregated into 21 regions (Annex Table 4). A different regional specification (15 regions), which identified individual trade partners, was used for the rest of the experiments (Annex Table 5). Documentation about the model and database is available at the GTAP website.<sup>27</sup>

# <u>Baseline description</u>

As of 2007, the calibration year for the modeling exercise, Turkey's average tariff on imports from the EU (0.47%) is below its corresponding average tariff on imports from the rest of the world (2.42%). On average, Turkey also applies lower tariffs on its agricultural and food imports from the EU (15.52%) than from the rest of the world (22.60%). Sugar and meat are exceptions where Turkey’s tariffs on EU products are higher than their equivalent from the rest of the world. Turkey's average trade-weighted (AVEs) for food and agricultural are on average (i) 15.5% for imports from the European Union; and (ii) 22.6% for imports from the Rest of the Word.

Turkey's exports to EU in food and agricultural products are mostly concentrated in processed foods and fruits, vegetables, and nuts. Turkey imports 30% of its food and agricultural imports from the EU. The EU as a whole imports 4% of its food and agricultural imports from Turkey (excluding intra-EU trade). EU imports from Turkey are 38% in “other foods” category which includes processed foods excluding dairy and 45% in “fruits, vegetables, and nuts.” Under the 2007 baseline, the EU-Turkey Customs Union covers trade in industrial products (excluding iron and steel). Under this arrangement: i) EU-Turkey trade in non-agricultural products is duty-free; ii) Turkey has adopted EU tariffs on non-agricultural imports from the rest of the world (the common external tariff); and iii) Turkey has adopted the non-agricultural components of EU free trade agreements with Albania, Bosnia-Herzegovina, Chile, Croatia, Egypt, Iceland, Israel, Jordan, Liechtenstein, Macedonia, Montenegro, Morocco, Norway, Palestinian Authority, Serbia, Switzerland, Syria, and Tunisia.

Turkey also has a Generalized System of Preferences (GSP) aligned with the EU’s GSP, which grants preferences to developing countries. Under the GSP, tariff preferences are provided for selected nonagricultural goods depending on the level of sensitivity. Duties have been eliminated for imports of nonsensitive goods and have been reduced for sensitive products. Non-agricultural imports from LDCs are dutyfree and quota-free in line with the EU’s Everything-But-Arms amendment to its GSP. Outside of the CU, there are tariff preferences for exports of Turkish primary agricultural products to the EU market, limited by quota and a free trade agreement covering trade in iron and steel (ECSC) products.

> 27 Available on the internet at www.gtap.com..

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