Historically, the EU provided a considerable amount of support through export subsidies. Reliance on these measures has dropped dramatically and the EU has offered to eliminate these measures in the context of a successful Doha Agenda. In 2011, spending on these measures declined from $US 5 billion in 2004 to $US 270 million in 2011 (OECD 2012, p. 144).

Another feature of current EU agricultural policy is an emphasis on boosting spending on agricultural research (OECD 2012). The EU will spend USD 970 million on three pan-European research facilities that will in the areas of i) environment and land-use changes; ii) systems biology in agricultural, healthcare and pharmacology; and iii) providing access to viruses, bacteria and fungi need for research on, among other areas, agricultural pests and diseases. Plans are also underway to promote agriculture as part of a European Innovation Partnership initiative.

On the whole, despite the EU’s large array of support instruments, the support given to agriculture in the EU has declined as a percentage of farm-gate value (Figure 7). Rising commodity prices play a role, but budget constraints have as well. Still, the level of EU support hovers near the OECD mean, and remains above the support given to more competitive agricultural sectors (Table 2).

The left panel of Figure 7 illustrates how the relative importance of particular support instruments has changed as the level of support given to producers declined in the EU. The graph shows, that despite ample opportunities for commodity-specific interventions, commodity-specific program expenditures have declined significantly as a share of farm-gate value, and given way to de-coupled payments as the primary support mechanism.

This allows farmers in the EU to worry less about government programs when deciding what to produce and, as a consequence, gives them greater flexibility to adjust to changing circumstances. However, the shift in instruments has tended to shift the costs from consumers, who faced higher prices via tariff protections, to government budgets. This is reflected in the average ratio of producer prices to border prices (NPC), which has fallen from 1.33 in 1995-97 to 1.05 in 2009-11 (OECD 2012, p. 138).

# **Pathways for deepening the economic ties between Turkey and the European Union**

In the next section, we report modeling results on a series of additional steps that might be taken toward EU membership: an expansion of the Customs Union to include all of agriculture; an expansion of Turkey’s bilateral free trade agreements to match the set of agreements reached by the EU; as well as the economic impact of full membership. Before doing so, we briefly explain what each step would entail. Under the general equilibrium modeling framework, we assume that food safety requirements will not unduly impede trade flows. There have been conflicts between Turkey and the EU over food safety issues in recent years; however, under the Accession institutions, steps have been taken to align standards in the two economies, which we discuss in this section as well.

# <u>Bringing agriculture fully into the Customs Union</u>

The decades-long process of willowing down agricultural trade barriers has brought about a _de facto_ free trade agreement between the EU and Turkey. Processed food items fall within the Custom’s Union and the barriers that do remain on primary agricultural goods have been hollowed out by tariff reductions and special exceptions. A recent OECD report (2011b) concludes that about 70 percent of Turkish exports to the EU enter duty free.

In general, Turkey’s tariffs for agriculture are based on value; Turkey applies ad valorem rates to nearly 98 percent of all tariff lines, and compound duties to 113 lines (mainly processed agricultural products such as 11