WPS7059


Policy Research Working Paper                     7059




Agricultural Policies and Trade Paths in Turkey
                               Donald F. Larson
                                 Will Martin
                                Sebnem Sahin
                                Marino Tsigas




Development Research Group
Agriculture and Rural Development Team
October 2014
Policy Research Working Paper 7059


  Abstract
  In 1959, shortly after the European Economic Commu-                               essay traces the influences the Turkey-European Union
  nity was founded under the 1957 Treaty of Rome, Turkey                            economic institutions have had on agricultural policies
  applied for Associate Membership in the then six-mem-                             and the agriculture sector. An applied general equilibrium
  ber common market. By 1963, a path for integrating the                            framework is used to provide estimates of what includ-
  economies of Turkey and the eventual European Union                               ing agriculture under the Customs Union would mean
  had been mapped. As with many trade agreements, agri-                             for the sector and the economy. The paper also discusses
  culture posed difficult political hurdles, which were never                       the implications of fully aligning Turkey’s agricultural
  fully cleared, even as trade barriers to other sectors were                       policies with the European Union’s Common Agricul-
  eventually removed and a Customs Union formed. This                               tural Policy, as would be required under full membership.




  This paper is a product of the Agriculture and Rural Development Team, Development Research Group. It is part of a
  larger effort by the World Bank to provide open access to its research and make a contribution to development policy
  discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org.
  The authors may be contacted at DLarson@worldbank.org.




         The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
         issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
         names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
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                                                       Produced by the Research Support Team
                  Agricultural Policies and Trade Paths in Turkey
                      Donald F. Larson, Will Martin, Sebnem Sahin and Marino Tsigas 1,




Keywords: Agriculture, Customs Union, EU, General Equilibrium Model, Trade, Turkey
JEL Classifications: F47; F52; Q13; Q17; Q18


Acknowledgements: The authors would like to thank Dimitris Diakosavvas, Kamer Krakurum Ozdemir, Ian John
Douglas Gillson, Refik Erzan and participants in seminars at the Center for Economics and Econometrics, Bogazici
University and the Villa Mondragone International Economic Seminar, University of Rome Tor Vergata for helpful
comments on earlier drafts. The authors are especially grateful to Polly Means for improving the paper’s figures. This
paper draws on work was supported by the European Commission in the framework of the Programmatic Trust Fund
for World Bank Knowledge and Advisory Services and by the World Bank’s programs for the Europe and Central Asia
region. The views expressed in this paper are those of the authors alone, and do not necessarily reflect the views of their
organizations.




1 Donald F. Larson and Will Martin are with the Development Research Group, World Bank; Sebnem Sahin is with the World Bank’s

Environment and Natural Resources Global Practice; and Marinos Tsigas with the US International Trade Commission.
                   Agricultural Policies and Trade Paths in Turkey
Introduction
Turkey has been on a decades-long path toward membership in the European Union. At times, advancement
of that goal stalled when events intervened or when the prospects for success dimmed. Nevertheless, the path
already taken has shaped Turkish institutions fundamentally and, via trade and investment, the Turkish
economy. The consequences for the agricultural sector are less direct, due in part to the historical political
hurdles that kept primary agriculture out of the original form of the European Union –Turkey Customs
Union; important as well were the divergent paths of domestic policies that the Customs Union exclusion
permitted.
In this essay, we look at the current institutions and policies of Turkey’s agriculture sector and place them in
the context of Turkey’s pursuit of EU membership. We model the economic effects of a set of additional
steps that might be taken toward EU membership, namely 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, and the economic impact of full membership. Full membership would oblige Turkey to
adopt a body of regulatory rules embodied in the community acquis and to modify its agricultural policies so that
they are consistent with the European Union’s Common Agricultural Policy (CAP). For Turkish agriculture,
the primary practical consequence of adopting the acquis would be the implementation of a more robust set of
mechanisms to ensure food safety, a process that has already begun and one that is likely to continue for
reasons separate from EU membership requirements. More significantly, the instruments through which
Turkey and the EU support agriculture have diverged in recent years, even though the levels of protection
afforded their respective agricultural sectors are broadly comparable. Although modifying agricultural policies
in Turkey is not strictly needed prior to EU membership, we argue that steps taken under the CAP to delink
farm support from the production of specific crops would serve Turkey well, regardless of decisions taken
about more fully integrating its economy with the EU. The reasons, which we also explore in the essay, have
to do withfundamental elements of on-going structural change in the Turkish economy.
Turkey-EU Institutions and Trade Relations
Turkey has deep and long-standing ties to the European Union, which have shaped the agricultural sector in
important ways. Turkey was an original member of the Council of Europe, an association established in 1949
to promote European cooperation on human rights, the rule of law, culture and legal standards. In 1952
Turkey joined NATO, also established in 1949. In 1959, shortly after its founding under the 1957 Treaty of
Rome, Turkey applied for Associate Membership in the European Economic Community (EEC), the original
common market pillar of the European Union.2 Turkey was also a founding member of the OECD,
established in 1961.
From 1957 to 1963, Turkey worked with the then-six members of the EEC, Belgium, France, Italy,
Luxembourg, the Netherlands and West Germany, to lay out a pathway for an eventual economic association.
Although the envisioned association would fall short of full membership in the EEC, the scope of the
planned economic integration was especially deep, given the historic context of the negotiations. To gain
perspective, it is worth pointing out that, during this period, the so-called “Outer-Seven” (Austria, Denmark,

2 For a good discussion of the institutions and history underlying the EU-Turkey economic relations, see Togan(2004) and the essays

in Cakir (2011).

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Norway, Portugal, Switzerland, Sweden, and the United Kingdom) had established a rival free-trade area, the
European Free Trade Area Association rather than join the EEC in its initial form. What’s more, the
applications of Denmark, Ireland, Norway and the United Kingdom to join the EEC were suspended in
1963, even as the details of Turkey’s association with the EEC were being ironed out (Kreinin 1960; Preston
1997).
The negotiations between Turkey and the EEC resulted in the Ankara Agreement, also known as the
Association Agreement, signed in 1963 and put into effect in December 1964. 3 At the heart of the Agreement
was the phased creation of a Customs Union, to be established in three stages: i) a preparatory stage, expected
to last five years, in which the EEC would provide financial support as Turkey prepared its economy for the
Customs Union; ii) a transitional stage, expected to last at most 12 years, in which tariffs and trade restrictions
would fall as the Customs Union was progressively established and economic policies between the partners
harmonized; and a final stage in which economic policies would be coordinated under a finalized Customs
Union. 4 The agreement also established a Council of Association, with representatives from both parties, to
guide implementation, along with a mechanism for resolving disputes.
The Agreement is clear that the Customs Union was meant to comprehensively integrate the two economies.
The Customs Union would cover trade in all goods, and involve all duties, quantitative restrictions and any
other mechanism that protected domestic producers. Further, it obliged Turkey to adopt the EEC’s Common
Customs Tariff with third countries (Article 10).
The Agreement frequently refers back to the Treaty of Rome and the economic freedoms laid out in that
document, seeing these as a source of guidance for the Association. For example, the Agreement calls for the
abolishment of restrictions on the freedom to provide services and to establish businesses and to provide
workers with the freedom to move between the EEC and Turkey, referring back to the relevant Articles of
the Treaty of Rome. 5 The Agreement also calls for the eventual consideration of Turkey as a full member of
the EEC (Article 28).
Still, as is often the case, primary agriculture presented a difficult hurdle for negotiators. 6 This is evident in
Article 11 of the Agreement, which states that the Association would extend to agriculture, but under special
rules. The Protocol also called for the Association Council to develop a subsequent Additional Protocol that
would guide the transitional expansion of trade prior to the finalization of the Customs Union. The
Additional Protocol was signed in 1970 and implemented in 1973. It called for the immediate reduction of
restrictions and tariffs of most Turkish exports into the now nine-member EEC and a phased reduction of
Turkish tariffs on EEC imports. Under a Temporary Agreement, the EC abolished restrictions on the import
of most industrial goods from Turkey in 1971 ahead of the effective date of the new Protocol. In 1973,
Turkey implemented its first round of tariff reductions, followed by a second round in 1976.
As the tariff reductions got underway, an economic crisis in Turkey, featuring high rates of inflation and
unemployment, deepened. In response, Turkey suspended its obligations to implement the Customs Union;
however, as part of international efforts to bolster Turkey’s economy, the Council of Association reached an
agreement (Decision 1/80) that phased out the customs duties on agricultural products imported into the
EEC in four stages between 1981 and 1987. 7 The Decision, issued in September 1980, also eased constraints

3 The relatively brief text of the Agreement is available on-line at: http://www.abgs.gov.tr/index.php?p=117&l=2
4 See Articles 2 through 5 of the Agreement.
5 See Article 12 through 14.
6 For a related story of how agriculture is often a problem for reaching broad trade agreements, see Madigan’s (1994) account of the

problems oilseed policies presented for the successful conclusion of the Uruguay Round of the GATT.
7 The Council decisions are available on-line at: http://www.abgs.gov.tr/files/_files/okk_eng.pdf .



                                                                  3
on Turkish workers residing in EEC member countries and strengthened economic cooperation between
Turkey and the EEC. A few days prior to the Decision’s release, a military coup d’état ousted the Turkish
Government, effectively suspending further work by the Council. Relations between Turkey and the EEC
were formally suspended in January 1982 and would not begin again until September 1986. During this
crucial period the EEC expanded to include first Greece and then Portugal and Spain.
In September 1986, the Council reconvened and the ambitions of the Ankara Agreement were taken up with
renewed vigor. Turkey applied for full EEC membership in April 1987 and submitted a plan to accelerate the
implementation of the Customs Union. Changes were also underway in the governance structure of the EEC,
resulting in the signing of the Maastricht Treaty in 1992. The Treaty had consequences for the decision
process established under the Ankara Agreement, since it required all third-party trade agreements to be
approved by the European Parliament. The Treaty also established the European Union (EU), with the EEC
converted to a pillar under the EU, named the European Community (EC). This was a significant
complication for a decision process that was already growing complex since an expanding EC had brought
new members to the Association Council, which requires unanimity to issue its decision.
Nonetheless, in 1995, the same year that Austria, Finland and Sweden joined the EC, the Council announced
Decision 1/95, which was approved by the European Parliament. The Decision laid out the implementation
phase for the Customs Union with Turkey, which entered into effect on January 1, 1996. 8 In 1999, Turkey
was officially recognized as a European Union candidate country, and in 2001 the Association Council
adopted an Accession Partnership for Turkey. The Council adopted a Negotiating Framework in 2005 and
negotiations began in 2006, nearly 42 years after the Ankara Agreement.
To date, the pathway to full EU membership for Turkey has been well articulated, partly because of Decision
1/95, and also because of the enlargement protocols worked out by the EU since the Maastricht Treaty. Still,
obstacles remain. For one, the relationships in a process that began as an economic agreement between
Turkey and six other countries are now multifaceted. The trade and economic components at the heart of the
EEC have become more fully integrated into a larger set of policy objectives, first with the formation of the
European Community in 1992 and again, in 2009 when the institutions and mandates of the EEC were
subsumed into the European Union, and as a consequence, more closely integrated with the EUs political and
social objectives. What’s more, the number of member states, which must reach unanimity for each
Association Council decision and for each step taken toward Turkey’s membership in the EU, has expanded
to 28. 9 In addition, Cyprus, now a member of the EU, remains divided following the failed unification
referendum in 2002, with only Turkey recognizing the de facto state of Northern Cyprus, embrangling the
Accession process. An important practical component of the membership process involves implementing EU
rules and laws, known collectively as the community acquis or acquis communautaire, which for the purposes of
negotiation are broken into 35 policy areas or chapters in EU parlance. By 2014, only the chapter on Science
and Research had been completed (closed.). EU member countries have blocked the start of some chapter
negotiations and frozen negotiations on others, due in part to issues related to Cyprus.
Nevertheless, the institutions established under the Ankara Agreement have proved remarkably resilient.
They have provided a permanent basis for negotiation and consultations, even after long periods when they

8 The Custom’s Union includes Andorra and San Marino, countries that entered into a customs union with the EU in 1991 and 1992.
9 Member states of the European Union as of 2013 and year of entry: Austria (1995), Belgium (1952), Bulgaria (2007), Croatia (2013),
Cyprus (2004), Czech Republic (2004), Denmark (1973), Estonia (2004), Finland (1995), France (1952), Germany (1952), Greece
(1981), Hungary (2004), Ireland (1973), Italy (1952), Latvia (2004), Lithuania (2004), Luxembourg (1952), Malta (2004), Netherlands
(1952), Poland (2004), Portugal (1986), Romania (2007), Slovakia (2004), Slovenia (2004), Spain (1986), Sweden (1995), United
Kingdom (1973).

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are little used. The Association Council has also continued to produce effective technical policy decisions,
despite significant changes in the composition and governance structure of the EU. In the case of agriculture,
the Council has also proved adroit in moving forward when possible and making limited exceptions to free
trade principles when needed.
Importantly, the Ankara Agreement put in place a strategy that first integrated Turkey and the EEC
economically before uniting the two partners under a shared regulatory and political structure, a structure
much more ambitious than the prevailing economically focused EEC governance structure in place when the
Agreement was signed in 1963. This integrated trade structure, largely completed in the 1990s, has had a deep
and persistent impact on the Turkish economy that would have been hard to imagine at the outset of the
Agreement. For one, the growth of Turkey’s economy in combination with the growth and expansion of the
EU component economies has created a large and competitive common market. Second, as is discussed later
in this essay, the relative macroeconomic importance of the exceptions carved out for agriculture has declined
and the importance of the sectors covered by the Customs Union have grown, due to a restructuring of the
EU and Turkish economies that is characteristic of growing economies.
Agricultural trade policies and the Customs Union
As with the Treaty of Rome, negotiators of the Ankara Agreement found it difficult to deal with agricultural
policies and trade in a comprehensive way. This was partly because of the inherent political difficulties of
negotiating trade concession for agricultural goods, but also because of the complex features of the EEC’s
Common Agricultural Policy. The approach taken was to signal the intent to eventually include agriculture
and an alignment of agricultural policies in the Customs Union, but to treat the sector apart until a
comprehensive solution could be found. The EEC had taken a similar approach under the Treaty of Rome,
putting off discussion of agricultural policy until the 1958 Stresa Conference (Stead, 2008). As a start, the
Agreement strictly defined what was meant by primary agriculture, based on definitions worked out in the
Treaty of Rome. 10 In addition, while most trade in primary agriculture remained outside the general terms of
the Agreement, a lengthy Provisional Protocol appended to the text provided a set of exemptions to ease
Turkish exports of tobacco, dried figs, dried grapes and hazelnuts into the EU. A more general term of the
agreement, precluded Turkey from favoring any single member of the EEC in its agricultural trade policies. 11
The Additional Protocol, issued in 1970, calls for Turkey to align its domestic policies with the CAP to the
point where agricultural goods can circulate freely in the Customs Union and requires the EEC to consider
Turkey’s agricultural sector when it puts CAP policies in place. The Protocol lays out the expectation that
agricultural goods will move freely after 22 years, but allowed the Council to change that date. 12 Annex 6 to
the Protocol provides selected Turkish agricultural products favored access to the EEC in the form of quotas
or reduced tariffs. A brief section of the Annex deals with EEC exports to Turkey and simply calls on Turkey
to grant the Community preferential treatment to the extent that imports into Turkey from the EEC increase
in a satisfactory way. To maintain momentum, Article 35 of the Protocol calls on the Council to regularly
assess progress and look to make improvements.
The reactivation of the Association and the subsequent roadmap to finalizing the Customs Union (Decision
1/95) contained several important agricultural provisions, some aspirational and others practical. Articles 9
and 10 of the Decision call on both parties to eliminate technical barriers to trade, including in food stuffs.

10 The Ankara Agreement relies on the definition of primary agriculture given in Annex I of the consolidated version of the Treaty of
Rome, published in the Official Journal of the European Communities on December 24, 2002, available on the internet at:
http://frontex.europa.eu/assets/Legal_basis/12002E_EN.pdf
11 Article 9 of Protocol No. 1.
12 Articles 33-35 of the Additional Protocol.



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On the practical side, section V of the Decision and a set of related annexes limited the scope for taxing
processed agricultural goods to an articulated list of primary products. It also defined a methodology for
taxing the agricultural content of traded products from third parties and also goods traded between Turkey
and the EEC. The section also set a time table for rapidly reducing effective tariffs.
Chapter II of the Decision deals exclusively with primary agricultural products. The chapter reaffirms the
common objective of Turkey and the EEC to include agriculture in the Customs Union and calls on each to
make progress. But it also extends the 22 year implementation period announced in the 1970 Protocol. The
Chapter reaffirms the call for Turkey to address any inconsistencies with the EEC CAP that might stand in
the way of the free movement of agricultural goods, and calls on the EEC to take Turkey’s interest into
account when formulating agricultural policies.
The practical aspects of including primary agriculture appeared in the Association Council’s Decision 1/98,
issued three years later. The Decision itself is brief and deals exclusively with agricultural products. The body
of the Decision announces the end of quantitative restrictions and then introduces three protocols. Protocol
1 of Decision 1/98 elaborates the preferential regime applied by the EEC for agricultural products originating
in Turkey; Protocol 2 elaborates Turkey’s regime for EEC imports; and a third Protocol lists the applicable
rules of origin. Protocols 1 and 2 set out tariff reductions for a specified list of agricultural products in
associated annexes. Imports of Turkish hazelnuts and processed tomatoes into the EU receive special
consideration in Protocol 1. In the case of EEC imports into Turkey, Protocol 2 lays out tariff-rate quotas,
based on large reduction or elimination of the within-quota duty. The rules of origin established in Protocol 3
were subsequently amended in December 2006 (Decision 3/2006).
Agriculture’s place in the Turkish economy
Elements of the Ankara Agreement were intended to shift economic incentives and opportunities and, by
doing so, stimulate economic growth and improve the prosperity of Turkish citizens. Especially in the case of
agriculture, the climatic and geographic features of an economy are relatively stable and can be an important
source of long-run comparative advantage. However, with time, most features of an economy can shift, as the
influence of general and sector-specific policies accumulate in institutions, and in the stocks of physical and
human capital available in the economy, leading ultimately to a gradual restructuring.
In Turkey, this dynamic has resulted in an agricultural sector that is large by regional standards and well
integrated with domestic and international markets; the composition of what the sector produces has changed
as well, moving to higher valued products anchored in the country’s natural advantages. At the same time, in
an apparent paradox, the sector’s significance in trade and for the economy as a whole has diminished
considerably.
Macroeconomic evidence of structural change
The agricultural sector of Turkey has grown to become the largest in the region; however other parts of the
Turkish economy have grown faster in recent decades, fundamentally changing the sector’s place in the
general economy. As recently as 1980, agriculture employed most of the work force and produced nearly 27
percent of national income (Figure 1). By 2012, the sector’s share of GDP had dropped below 10 percent,
although more than 31 percent of the labor force remained in agriculture. The importance of agriculture in
trade declined as well; agricultural goods accounted for about 20 percent of merchandise trade in 1980 but
only 7 percent in 2012.
In general, this process of structural change has been beneficial. In Turkey, as in all but the wealthiest
countries, average incomes outside of agriculture are higher than in agriculture, motivating an outflow of

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labor from agriculture to other sectors, a process which often lasts for generations. The restructuring of the
labor force is an archetypical element of economic development that spurs growth in nonagricultural sectors
and raises incomes in agriculture as average sector incomes converge (Larson and Mundlak 1997; Mundlak,
Larson and Crego 1998; Gardner 2000). In the case of Turkey, average valued-added per agricultural worker
to national income increased by nearly 75 percent between 1980 and 2012, while GDP per capita in Turkey
more than doubled. Economic growth brought with it a significant reduction in poverty. Figure 2 reports
poverty rates for rural and urban populations from 2002 forward.13 Poverty rates in urban areas fell from
nearly 39 percent in 2002 to 0.6 percent in 2012. Rural poverty rates fell sharply as well, from about 25
percent to 5.9 percent.
Still, despite the dramatic restructuring of the Turkish economy over the last 30 years, there are indications
that the process is not yet complete. Figure 3 shows a ratio of the average income per worker in agriculture to
economy-wide average income per worker in Turkey and in Brazil, Chile, Italy and Spain – peer countries
with robust agricultural sectors. The graph shows that, despite rapid economic growth overall, Turkey has
been less successful than its peers at narrowing the difference between agricultural and nonagricultural
incomes. Recalling Figure 2, the sector differences are also reflected in the growing disparity in rural and
urban poverty rates.
In combination, the changed role for agriculture in the Turkish economy and the remaining gap in average
incomes between agriculture and other parts of the economy has subtle implications for policy. To a
significant degree, agriculture no longer drives trade and economic growth in Turkey as it has in the past. This
means that sector policies are less directly tied to the performance of the economy overall. However, the
continued gap in incomes speaks to the need for continued productivity gains in the sector. Productivity gains
and sector growth normally go hand in hand; however productivity gains are often also associated with a
change in the composition of production, which means that some subsectors shrink as others grow. As
discussed next, there is evidence that, in the case of Turkey, change in the composition of traded agricultural
goods is well underway.
Evidence of structural change in agricultural trade
As agriculture’s place in the wider economy changed, so did the composition and direction of Turkey’s
agricultural trade – changes that are largely rooted in the sector’s natural strengths. Turkey benefits from a
Mediterranean climate, conducive to producing high-valued horticultural goods of the type grown in Spain
and Italy, but has more land and significantly greater water resources than either country (Table 1). Turkey is
also strategically located relative to markets in Europe, Central Asia, and the Middle East and North Africa
(MENA). In addition to its strong institutional ties to Europe, Turkey also has strong trade and cultural ties
to MENA, where population growth rates are high and where food production is limited by water scarcity. As
a consequence, the region has turned into significant food importer (Larson et al. 2014). In Europe and some
MENA countries, income gains have also driven increased demand for fresh fruit and vegetables and the
types of processed food products provided by Turkey’s agribusiness community. In response, the
composition of exports has shifted to higher-valued products and a second center of gravity for agriculture
exports has emerged in MENA in addition to traditional European destinations.
Figure 4 shows the composition of Turkish agricultural exports by level of processing. In all cases, the goods
are included in what the United Nation’s Food and Agriculture Organization (FAO) classifies as primary
agricultural goods. For our purposes, we subdivide this set of commodities into subgroups, based on notional


13   Corresponding data is not available for prior years.

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ideas of value added. 14 In the late 1980s, about a third of Turkish exports consisted of unprocessed or lightly
processed goods, like cotton, olive oil, or animal hides. With time, the share of this category of exports fell
and the share of goods with a higher value-added content, such as wheat flour, cheese, tomato paste, and
prepared juices, increased. The share of trade in highly perishables (mostly fresh fruit and vegetables) also
grew, crops which are high-valued because the places with the agro-climatic conditions required to produce
them are limited, and because of the costs associated with maintaining the quality of perishables and
managing associated food hazards. The composition of trade by destination has changed as well. Figure 5
shows that the share of value has Turkey’s agricultural exports from one that was strictly focused on the EU,
to one in which MENA has become a secondary center of trade.15
The next figure reports data on trade in agricultural manufactured goods using data from Turkish exporting
firms. The left panel of Figure 6 shows firm activity by product type to Europe, while the right side of the
figure shows comparable data on to MENA. 16 The numbers in the table were constructed using information
from firm censuses, matched with customs data, to count the number of firms exporting a particular type of
agricultural good. The term “firm activity” is used in the table to indicate that the reported categories are not
mutually exclusive and that there is double counting; for example, firms that ship to the EU might also ship
to MENA and firms that ship fresh fruit might also ship prepared fruit.
As with the data on export shares, the data point to the relative stability of firm activity centered on Europe
and the rise of new trade activity with firms and governments in MENA. The composition of the trading
activity includes both primary agriculture of the kind excluded from the Customs Union and “manufactured”
food items. Although it is hard to discern from the graphs, the value of exports for the representative firm
exporting to the EU is higher than for other firms. Overall, the graphs indicate that the growth in export
activities is focused on high-valued fruits and vegetables and on processed agricultural goods.
What would closer alignment of Turkish and EU policies entail?
As discussed, the Ankara Agreement institutions provided an ongoing mechanism that prompted Turkey and
the EU to align their agricultural trade policies, and the Association Committee frequently exhorted both
sides to align domestic agricultural policies as well. As the Agreement institutions give way to the Accession
institutions, the remaining differences in domestic policies take on greater importance. As an EU member
state, Turkey would be obliged to fully align its tariffs for agricultural goods with those of the EU, a task
made more complex due to the recent proliferation of bilateral agreements. As a practical matter, this
obligation is equivalent to bringing agriculture into the Customs Union. More significantly, under EU
membership, Turkey would adopt the EU’s Common Agricultural Policy (CAP), implying changes to current
domestic policies that would not be required under an expanded Customs Union.
Agricultural policies in Turkey
During the closing decades of the 20th century, the Government of Turkey intervened to manage the prices
for key commodities through government purchases and sales. Farm inputs, including credit, were subsidized,
and the government invested heavily in irrigation and other types of infrastructure. Institutions created to
administer this complex set of instruments included State Economic Enterprises (SEEs); the Agricultural
Sales Cooperative Unions (ASCUs); and the state-owned banks. An OECD evaluation concluded that
“financial losses due to intervention purchasing by ASCUs, the Turkish Grain Board, the State-owned
Tobacco Enterprise and the state-owned Sugar Enterprise, coupled with borrowing by the SEE from

14 The full taxonomy used to generate the table is given in Annex Table 1.
15 The increased importance of the MENA region for Turkish exports is reflected in other sectors as well. See World Bank (2014b).
16 The original data is classified HS2002, sectors 01-24.



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commercial banks at relatively high interest rates, were key factors in the country’s overall economic
turbulence in the 1980s and 1990s.” (OECD 2011b, p. 10)
Agricultural policies began to rely more heavily on markets starting in 2001 under the Agricultural Reform
Implementation Project (ARIP). Under the ARIP, between 2001 and 2008, state-owned enterprises and the
ASCUs were restructured, and the practice of administering commodity prices abolished. To ease the
transition and to help prepare for EU accession, the government established a National Farmers’ Registry
System (NFRS) that allowed farming households to receive direct income support de-coupled from
production. The rationale for the policy change was to allow farmers to respond to price signals when
deciding what to produce, while continuing to provide levels of income support similar to that received under
the system of commodity price supports. Still, as a practical matter, the portion of total producer support that
was de-coupled was never large and has dwindled since 2006.
As discussed, many producers in Turkey are shielded from international competition by an array of import
tariffs, especially livestock, dairy and sugar beet producers. 17 In addition, floor prices for cereals, sugar and
tobacco are supported through direct purchases. Production quotas are in place for sugar beet. Fresh and
processed fruit and vegetables, derived food products, poultry meat and eggs receive export subsidies.
Tobacco and hazelnut farmers benefit from a program to help them transition to other crops. Crops that are
deemed in short supply qualify for premium payments, sometimes referred to as deficiency payments;
oilseeds, olive oil, cotton, cereals, tea and pulses have benefited from the program in recent years. Interest
rate concessions and direct payments encourage the improvement of livestock breeds and land improvements
that protect soils and allow the consolidation of small tracts. De-coupled income support, instituted under
ARIP, has been phased out, but farmers registered under the NFRS, receive so-called “diesel payments” and
“fertilizer payments,” which totaled nearly $US 45 per hectare in 2011, are in practice de-coupled. 18 The
livestock sector benefits from a variety of animal husbandry supports. The government also reimburses 50
percent of the premiums on an insurance scheme available to all producers, which covers field crops,
orchards, greenhouses, cattle, poultry and bees against hail, frost and animal life. Most farmers are exempt
from income taxes
Taken together, these policies provide a level of support for producers greater than that provided by most
OECD countries. Table 2 shows the average level of support between 1996 and 2011. The units in the table,
known as Percentage Producer Support Estimates (percentage PSEs), are based on an OECD methodology
that combines various types of interventions into an estimated average value for producers, relative to the
farm-gate value (inclusive of support) of what they produce. 19 Because the methodology converts disparate
interventions, like trade barriers and subsidized insurance, into value equivalents, the methodology is used to
show the aggregate effects of those policies. Calculations based on the approach are often the basis for treaty
negotiations. As the table reveals, all told, producers in Turkey receive greater support than do farmers in the
EU. Among OECD countries, only Iceland, the Republic of Korea, Japan, Switzerland and Norway had
higher percentage PSEs than Turkey in 2011.
As the table shows, this has not always been the case. Although farmers in Turkey have received greater levels
of support than Chile or the United States, levels were lower than in the EU until recently. Support to farmers

17 This section relies heavily on the policy descriptions for Turkey in OECD (2011a), OECD(2011b) and OECD (2012).
18 Despite their name, these payments are de-coupled and are paid regardless of whether fertilizer or fuel are purchased.
19 The OECD defines the measurement thus: “The Producer Support Estimate (PSE) is an indicator of the annual monetary value of

gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy
measures, regardless of their nature, objectives or impacts on farm production or income….The percentage PSE is the ratio of the
PSE to the value of total gross farm receipts, measured by the value of total farm production (at farm gate prices), plus budgetary
support.” Available on the Web at: http://stats.oecd.org/glossary/detail.asp?ID=2150 (downloaded Jan 27, 2013).

                                                                 9
dropped sharply in 2001, in response to budgetary constraints at the start of ARIP, then continued to climb
until 2006. As the EU successfully lowered and de-coupled support to rural areas, EU percentage PSEs fell
below those of Turkey. Since 2006, rates have fallen in both Turkey and the EU, but remain high relative to
comparable agricultural sectors.
Figure 7 gives a breakdown of the percentage PSEs by type of policy instrument employed for Turkey and
the EU. Focusing first on the right-hand side panel, the figure shows that, although the list of interventions
discussed at the start of this section is long, the agricultural sector in Turkey is largely supported through
higher prices, in particular through the protection provided by import tariffs and export subsidies and, to a
lesser extent, premium payments given to particular crops. Under the terms of its WTO commitments,
Turkey also has the right to extend a limited level of support to its agricultural sector through export
subsidies; export subsidies are allowed on 44 product groups, with 16 of these receiving export subsidies of
10-to 20% in 2011 (OECD 2012, p. 216). As the figure shows, the average ratio of producer prices to border
prices (NPC) in Turkey fell from 1.25 in 1995-97 to 1.19 in 2009-11, largely due to rising world prices
(OECD, 2012).
An important practical consequence of delivering support linked to specific crops is that it requires farmers to
produce particular products to receive support. Conversely, switching from one crop to another can affect
the level of support farmers received. In addition, the amount of support a farmer receives increases along
with production levels, so that crop-linked support mechanisms usually result in greater aggregate production
levels. In turn, this can lead farmers to use marginal land and water resources, or perpetuate the use of
outdated production methods that would not be profitable absent subsidies.
Agricultural policies in the European Union
EU agricultural policy instruments and objects have shifted significantly during the last decade, moving away
from a system that relied heavily on commodity-linked payments and on border measures, such as variable
tariff protection and export subsidies, to one that supports rural communities in a de-linked fashion.
However, Agricultural policies for EU members are made up of a mix of common and national policies that
are supported in part by EU funds and in part through national budgets. As with policies in Turkey, legacies
of past policies are still present in the current mix of instruments, despite efforts to detach support from
production incentives.
Two pillars comprise the EU’s Common Agricultural Policy (CAP). The first pillar is made up of common
instruments, including Single Payment Scheme (SPS) and Single Area Payments Scheme (SAPS), and a
mixture of instruments, including tariffs, tariff rate quotas (TRQs), export subsidies, price supports and, in
the case of sugar, private storage incentive (OECD 2012). Pillar II programs are organized according to
National or Regional Development Programs and, in contrast to Pillar I programs, are partly funded and
directed by individual member states. The stated goals of the CAP are to: i) improve competitiveness; ii)
improve the environment and maintain the countryside; and iii) improve the quality of life in rural areas and
diversify local rural economies. In 2010, the EU budget on agriculture and rural areas amounted to EUR 58.8
billion (USD 75.2). Most of the budget went to Pillar I payments (70%). Pillar II payments made up 24%,
with most of the remainder going to market price supports. Of the Pillar I payments, most went to de-
coupled payment schemes, based on historical production patterns. However, cereals and sugar are protected
through tariffs, tariff-rate quotas and export subsidies. Sugar prices are also supported through production
quotas and storage regimes; for some cereals floor prices are protected through public interventions. Eggs,
poultry and sugar benefit from price-triggered “special safeguards.” What’s more, EU members can spend 10
percent of the funds they receive under Pillar I for specific purposes, including providing price support.

                                                      10
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.
Bringing agriculture fully into the Customs Union
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
yoghurt and pasta). Variable duties apply to 84 tariff lines, such as butter, sugar confectionary, chocolate,
malt, and prepared potatoes. Tariff preferences on agricultural products, granted under Turkey's trade
agreements, are generally subject to quotas.
On average, trade policy provides greater protection for agriculture than other sectors. In 2011, Turkey’s
simple average applied most-favored-nation (MFN) tariffs for agriculture was over 41 percent, in contrast to
about 5 percent average for non-agricultural goods.20 Tariff rates on some processed meat products are
especially high, ranging up to 225 percent; some dairy product tariffs, like those on buttermilk and cream, are
set at 180 percent; duties in excess of 146 percent are applied to some fruit and vegetable products. Still, all
tariff lines for agricultural products are bound, albeit at high rates. Tariff escalation, the practice of setting
lower tariffs on raw materials and higher tariffs on processed agricultural products so as to protect domestic
processing industries is most common for food, beverages and tobacco products. Turkey also maintains a
statutory tariff, which can be used to boost applied tariff rates to 150 percent of the scheduled rate when
deemed necessary, although overall rates cannot exceed those bound under the WTO.
As with Turkey, all agricultural duties for the EU are bound and, in contrast with Turkey, all non-agricultural
tariffs are bound as well. In general, bound maximum tariff rates are lower in the EU. Because of the
Customs Union, average applied tariffs on non-agricultural products are equal in the EU and Turkey.
Still, as Figure 8 shows, even though tariff protection accounts for a larger share of producer support in
Turkey than in the EU, there are few practical differences when comparing applied rates. On average, tariff
rates were much higher for dairy and animal products than in the EU. Smaller differences occur for
horticultural goods, which both Turkey and the EU produce. In contrast to the EU, Turkey has a domestic
tea subsector, which receives protection from imports. 21
Said differently, despite philosophical differences about the role of tariff protection as an instrument of
agricultural policy, the EU and Turkey have very similar tariff profiles, and the apparent differences in trade
policies are largely due to differences in applied rates for horticulture, dairy and the livestock subsectors.
Do food safety requirements serve as non-tariff barriers?
Historically, sanitary and phyto-sanitary standards (SPS) are viewed with suspicion by trade policy makers as
potential vehicles for technical barriers to trade. And SPS related interventions have been a long-standing
source of irritation in Turkey-EU trade relations. A significant flare up occurred following the 1996 discovery
of Mad Cow Disease in some EU states with Turkey, among other countries, halting imports (Engel 2000). In
response, the EU reintroduced duties on imports of Turkish tomato paste and watermelon. Although Turkey
did offer compensation for the ban in 2005, Turkey’s restrictions on beef stayed in place until 2010 when
Turkey issued authorizations to 14 qualified member states (Stivachtis 2011). Although the EU is a unified
customs territory importers are permitted to distinguish between areas within a customs territory on the basis
of criteria like the disease-free status of those areas, the status of the remaining states remains contentious
(World Bank 2014a). 22
On the Turkish side, EU unwillingness to accept animal product exports from Turkey is a long-standing
irritant that has been only partially addressed. In 2009, seven Turkish companies were approved to export
process poultry to the EU (USDA 2010). And in 2013 after an absence of 13 years, dairy exporters from



20 Tariff details for Turkey are given in Annex Table 2. Annex Table 3 reports the equivalent tariff information for the EU.
21 Turkey accounted for just under around 5 percent of world production in 2011, according to FAO (2013).
22 See GATT (1994, p74) for the relevant area rules.



                                                                  12
Turkey regained access to the EU market when six firms were approved by EU regulators. (Anatolia News
Agency April 2, 2013).
Because food safety concerns have stymied some types of agricultural trade, it is easy to view recent steps to
improve Turkey’s food safety as driven by its bilateral commitments to the EU. The Ankara Agreement and
the body of related protocols and Council decisions call for an alignment of Turkish and EU policies that
facilitate the free flow of goods, which among other things, requires an alignment of food safety standards. In
addition, EU Accession requires that Turkey adopt the community acquis, including EU standards on food and
animal safety.
Still, the technical standards required by the Customs Union and EU membership may matter less for Turkey
than a growing need for agricultural exporters to meet stringent quality and food safety standards in order to
compete globally. Firms keenly aware of the legal and reputational risks of serving or selling contaminated
food have instituted their own hazard management systems that trace a product from field to fork., whether
the product is sourced locally or imported. 23 Increasingly, public standards have presented a lower hurdle to
trade than private standards for high-valued agricultural goods, which has in turn driven an updating of public
standards (Hobbs 2010). Recent legislation in the US will bring standards there into better alignment with
more stringent private and EU standards, part of a global trend toward stricter quality and safety
requirements (Humphrey 2012; ). In addition, there is emerging evidence that countries like Chile are
advantaged by strict quality and safety standards (Melo et al. 2014). The salient point is that as consumers
increasingly purchase their food from grocery stores and restaurants, strict food safety and quality standards
based on managed product streams, rather than ex post tests, have become an increasingly important and
intrinsic component of agricultural trade.
In the case of Turkey, the requirement to align its food safety requirements with the community acquis dovetails
with the ambitions of its agribusiness sector to penetrate high-value markets, and the Government has taken
recent steps to upgrade domestic regulation. At the center of this effort is the Production, Consumption and
Inspection of Food Law, implemented in 2004, an umbrella legislation designed to protect public health and
lay out standards for the food industry. Another key piece of legislation is Turkey’s 2006 Food Law (No.
5996), which requires all food processing firms to eventually conform to EU food safety standards. The
Government has also taken significant action to improve food safety in the livestock subsector. An
identification system for bovine diseases was introduced in 2004 and a similar system for sheep and goats in
2009. The Veterinary Services, Phytosanitary, Food and Feed Law, enacted in 2010, moves the regulatory
framework for the livestock sector in line with that in the EU.
Nevertheless, a study by the World Bank (2010) identified shortcomings in current livestock practices that
leave the food processing chain vulnerable to food safety hazards and gaps in compliance with EU food
safety requirements. Efforts to close the identified gaps have been supported by the EU’s Instrument for Pre-
Accession Assistance Program (IPARD) for Turkey, which was approved in December 2007. The program
targets key subsectors, including dairy, meat, fruit, vegetables and fish and has a total budget of EUR 1.165
billion. Under current plans the EU will fund half of the project, with the remaining half funded by the
Government of Turkey and program beneficiaries in equal measure. Of the total budget, roughly 68 percent
will go to helping farms (40 percent) and food processors (28 percent) conform to EU standards. 24


23 See Hearath and Henson (2006) and the references therein about the voluntary adoption of hazard analysis and critical control

point (HACCP) systems. Rouvière and Latouche (2014) discuss the liability incentives under EU law.
24 Turkey’s Ministry of Agriculture and Rural Affairs provides additional information on IPARD in a report available on-line at:

http://ec.europa.eu/enlargement/pdf/turkey/ipa/tk5_tk_ipard_programme_2007_en.pdf.

                                                                 13
Third-party trade relationships
The Ankara Agreement and the subsequent work of the Association Council understandably focused on the
bilateral trade relations between Turkey and the EU. The trade relationships with third-party countries were
to be coordinated in the form of a common external tariff, a process that moved methodically and in a
predictable way for nearly four decades. During this time, Turkey’s trade relationships with other countries
changed, for the most part, either through EU enlargement, or because of tariff concessions negotiated
through a multilateral process under the General Agreement on Tariffs and Trade (GATT). Turkey became a
GATT participant in 1951 and, together with the EU, participated in five successful rounds of tariff
reductions from 1955 to 1994 (Togan 2005). 25
With the Doha Round stalled, many countries turned to bilateral and regional free trade agreements, including
the EU and Turkey. However, where the Customs Union and EU expansion institutions were robust, the
rules for coordinating bilateral agreements are not. Under the Customs Union, the EU and Turkey are
obligated, in general, to jointly impose a common tariff regime. However, as discussed, this obligation does
not fully extend to agriculture. And, as a practical matter, some primary agricultural goods do not circulate
freely due to unresolved SPS barriers. The effects of these omissions to the Customs Union had minimal
consequences in a world where third-party tariffs are mutually set in a multilateral setting; however, the
consequences become harder to track when they occur bilaterally. Even though Turkey is obligated under
Decision 1/95 to align its commercial policies with that of the EU, third-party countries that have reached an
agreement with one Customs Union partner are not obligated to reach an agreement with the remaining
partner. What’s more, even when both Turkey and the EU have successfully concluded a FTA with a
common third-party, the terms of the respective FTAs can be different. This introduces the potential for
trade diversion and a new set of trade irritants related to rules of origin.
Table 3 shows the third-party free trade agreements concluded or under consideration at the close of 2013.
The list shows that Turkey is largely in a state of catching up with agreements already concluded by the EU,
leaving Turkish exporters at a disadvantage to competitors from the EU. In addition, exporters that have
concluded a FTA with the EU but not Turkey have an incentive to transship goods via the EU to avoid
Turkish import duties. In the case of cars, Turkey uses protective measures based on rules of origin to
counter trade deflection but this comes at a cost, since it reintroduces costly inspection processes that are
generally avoided in a Customs Union.
In the near term, the FTA gap may widen before it closes, as new agreements under consideration include the
large economies of Canada, Japan, India and the United States and important trading blocs like Mercosur, and
the ASEAN countries are proceeding in an uncoordinated fashion. This is significant since the combination
of rules that permit the free circulation of goods within the Customs Union together with a de facto non-
common tariff schedule for third-party countries sets the stage for unintentional diversions in trade flows and
additional confrontations over rules of origin. How this will play out for the Customs Union absent Turkey’s
accession to the EU is unclear, but we explore some of the welfare implications in a modeling exercise laid
out in a latter section.
Policy Scenarios 26
In this section we report on an analysis of several potential pathways for agricultural trade policy for the EU
and Turkey. Three policy scenarios are considered. The first scenario estimates the gradual alignment of

25   Turkey joined the World Trade Organization when the new organization subsumed the GATT in 1994.
26   This section is based on Tsigas and Sahin (2013)

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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 non-
agricultural 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. 27
Baseline description
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 non-
agricultural goods depending on the level of sensitivity. Duties have been eliminated for imports of non-
sensitive goods and have been reduced for sensitive products. Non-agricultural imports from LDCs are duty-
free 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..

                                                      15
Scenario 1: Aligning Turkey’s agricultural policies with the EU’s trade policies and the CAP
With this as background, scenario 1 contains four component policy changes that are implemented
sequentially to bring Turkey’s agricultural trade and domestic policies in line with EU policies: i) EU-Turkey
trade in agricultural products becomes duty- and quota-free; ii) Turkey adopts EU tariffs and tariff-rate quotas
on agricultural imports from the rest of the world (the EU common external tariff); iii) Turkey adopts the
agricultural components of EU free trade agreements and the GSP; and iv) Turkey adopts the Common
Agricultural Policy. The key findings from the simulation, given in Table 4, are as follows.
Impacts of widening the EU-Turkey Customs Union to cover food and agricultural trade have positive
welfare impacts for Turkey. In all scenarios, real income (economic welfare) increases in Turkey. Welfare
gains are highest ($US 843 million) at stage iii, when agriculture is fully included in the Customs Union and
Turkey has adopted the agricultural components of EU free trade agreements.
Turkey's adoption of the CAP reduces the welfare gains of trade policy reform because it diverts resources
from manufacturing sector to agriculture. Turkish production and exports of agricultural and food products
increase at the expense of manufactured goods. 28 Overall, a trade deficit of $US 281 million occurs. Because
efficiency gains are lower than those obtained under the trade liberalizing simulations, the overall welfare
gains, defined as the sum terms of trade and efficiency gains, decline to $US 500 million.
On average, consumer prices decline since Turkish markets are opened to competition. Prices decline further
when Turkey adopts EU free trade and GSP policies. Prices decline the most in the case where CAP-like
subsidies are adopted in Turkey since some tariffs are lowered but producers are compensated through
alternative instruments that provide equivalent levels of support.
Under all scenarios, average wages for skilled and unskilled labor increase. This, combined with falling
consumer prices, means that the further elimination of trade barriers will benefit lower income groups for
whom wages comprise a larger share of their income. This effect is largest under the full integration scenario
when Turkey domestic agricultural policies are brought in line with the CAP. The returns to capital and
natural endowments also increase under all of stages of “deepening”. Under the first three liberalization
scenarios, land prices fall as protected crops face new competition. However, land rents increase significantly
when CAP policies, which target agricultural producers rather than production, are implemented.
Scenario 2: Finalizing non-compliant FTAs
Under the existing customs union, Turkey’s imports of industrial products from EU FTA partners are duty
free. In some cases, Turkey’s exports of non-agricultural products to these same markets are also duty free.
However, for a number of EU FTA partners asymmetries in the tariff schedules create opportunities for
trade diversion. This is because industrial goods imported into Turkey from these sources trans-shipped via
the EU may enter Turkey duty-free, while Turkey’s industrial goods exported to directly to the same set of
countries may not. 29
In this analysis, the CGE model is used to quantify the impacts of these countries extending duty-free access
to imports of industrial products from Turkey. The simulations focus on the following ten economies (which
are identified in the GTAP database): Mexico, South Africa, Colombia, Peru, Panama, Costa Rica, Guatemala,
El Salvador, Honduras, and Nicaragua. Ten different simulations are run (one for each economy) for the
analysis.


28   Detailed product results are given in Annex Tables 6 and 7.
29   Annex Table 8 shows the disparity of applied rates resulting from the set of piecemeal negotiations.

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The results are summarized in Table 5. It shows that Turkey’s real income would increase as a result of
finalizing each of the outstanding FTAs in manufacturing trade. The highest gains would be obtained from
Mexico ($111 million), South Africa ($115 million), and Colombia ($41 million) because all Turkish exports
would receive higher prices. In the aggregate, increases in imports would slightly exceed exports; however the
Turkish exports which would experience an increase are textiles (to Mexico); wearing apparel (to Mexico and
South Africa); paper products (to South Africa); petroleum and coal products (to Mexico); and motor vehicles
and parts (to Mexico, South Africa, and Colombia). 30
Turkey’s overall exports to Mexico, South Africa, Colombia, Peru, Panama, Costa Rica, Guatemala, El
Salvador and Honduras would increase as a result of finalizing the FTAs in manufacturing, but imports would
increase more. Still, keeping in mind that the starting points for the model are $US 123 billion in exports and
$US 170 billion in imports, the simulated net impacts of finalizing the trade agreements are negligible.
A summary of the policy scenarios
The simulated welfare gains for key trade policy changes are summarized in Table 6. As the last column
reveals, the economy-wide welfare gains are small under any of the alternative policies when measured against
the backdrop of the Turkish economy. In other words, even though agriculture has been nominally excluded
from the Customs Union, events and accords reached since the Ankara Agreement have worked to minimize
the economic consequences of that exclusion. Still, the analysis shows that bring agriculture fully into the
Customs Union does benefit Turkey, especially Turkey’s consumers and wage earners. As discussed, the
external tariffs for both economies are already nearly aligned, with the key differences in horticulture, dairy
and livestock. These products are also the ones where food safety hazards are more likely. Consequently, the
full benefits from extending the Customs Union to include agriculture depend on resolving safety standards, a
process that has already begun under IPARD. It is worth noting as well, that the gains to land and labor, key
assets for most farming households, are highest under scenario iv in which agriculture is fully included in the
Customs Union and the EU’s Common Agricultural Policy is adopted as well.
Conclusion
Turkey and the EU have been on a long path toward integrating their economies, guided by a remarkable set
of institutions established under the Ankara Agreement. The institutions provided steady technical support
and moved quickly to advance the long-standing goals of the Agreement when opportunities presented
themselves, even after long periods of disuse. The institutions also proved agile at limiting the consequences
of agriculture’s exclusion from the original blueprint for the Customs Union.
Economic theory suggests that lowering trade barriers should result eventually to shifts in production and
trade that leverage a country’s comparative advantage, and there is casual evidence that this is the case for the
agricultural sector in Turkey. Differences in the agricultural-trade regimes of Turkey and the EU remain but,
over time, agreements brokered by the Association Council have whittled them down. Consistent with this,
our simulations suggests that further integrating the economies of Turkey and the EU would generate wage
benefits for Turkish workers and welfare gains for Turkish consumers; however the simulations also suggest
that the gains would not be substantive when measured against national income.
Since the signing of the Ankara Agreement, economic growth and a restructuring of the Turkish economy
have changed agriculture’s role in the economy at large. A decades-long shifting of labor from agriculture to
other sectors has facilitated overall growth and lifted average incomes both in both sectors. Poverty rates in


30   See Annex Table 9 for detailed results.

                                                       17
rural and urban areas have fallen as well. But there are indications that structural adjustment is not complete,
as average incomes are lower and poverty rates higher in agriculture than for the economy as a whole.
In its new role, agriculture is less important as a driver of economic growth and trade, but it remains crucial to
the prosperity of rural areas. Full membership in the EU would compel Turkey to implement food safety
standards consistent with the community acquis and to adopt the EU’s Common Agricultural Policy. As a
practical matter, Turkey has already taken steps to bring domestic food safety standards in line with the EU’s,
in part because meeting such standards is needed to participate fully in the markets that supply supermarkets,
restaurants and agribusinesses worldwide. Consequently, for policy makers, the remaining question is whether
taking the additional step of adopting domestic policy measures similar to the CAP would benefit Turkey.
Based on first principles and backed by simulation results, we believe there are elements of the EU CAP that
might serve Turkey well, even if progress toward EU membership stalls. In particular, it seems likely that a
policy shift in Turkey away from the practice of tying assistance to the production of historically important
crops in favor of the emerging EU practice of supporting farms and farmers would speed a structural
adjustment process, already underway in Turkey, that works to bring average incomes in agriculture in line
with the higher average incomes earned in other sectors.
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                                                          19
Figure 1: Structural change and agriculture in the Turkish economy, 1980-2012

    $US 2005                                                                                          Share (%)
   thousands
  12                                                                  GDP per capita                        0.6
                                                                      Agricultural income per worker
                                                                      Share of workforce in agriculture
  10                                                                  Agriculture's share of trade          0.5
                                                                      Agriculture's share of GDP

      8                                                                                                     0.4


      6                                                                                                     0.3


      4                                                                                                     0.2


      2                                                                                                     0.1


      0                                                                                                     0.0
          1980
          1981
          1982
          1983
          1984
          1985
          1986
          1987
          1988
          1989
          1990
          1991
          1992
          1993
          1994
          1995
          1996
          1997
          1998
          1999
          2000
          2001
          2002
          2003
          2004
          2005
          2006
          2007
          2008
          2009
          2010
          2011
          2012
Source: FAO (2014); World Bank (2014).



Figure 2: Shares of rural, urban and national populations below national poverty line, 2002-2012

  Share of
population
0.4
                                                                              Rural
                                                                              Urban
0.3



0.2



0.1



0.0
          2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: World Bank Development Indicators (2014)




                                                            20
Figure 3: Agricultural incomer per worker relative to economy average in Turkey and selected peers, 1995 to 2012.

    Share (%)

                Spain
                Italy
   0.6
                Brazil
                Chile
                Turkey
   0.4



   0.2



   0.0
                 1995                       2000                    2005                      2010                       2012
Source: FAO (2014); World Bank (2014).



Figure 4: Composition of agricultural exports by processing category, 1993-2010

 Share of export
 value
100%
                                                                                                                                       Fresh fruit &
                                                                                                                                       vegetables
 80%
                                                                                                                                       Nuts & spices


 60%
                                                                                                                                       Processed
                                                                                                                                       goods
 40%



 20%
                                                                                                                                       Raw & lightly
                                                                                                                                       processed
   0%
         1993
                1994
                       1995
                              1996
                                     1997
                                            1998
                                                   1999
                                                          2000
                                                                 2001
                                                                        2002
                                                                               2003
                                                                                      2004
                                                                                             2005
                                                                                                    2006
                                                                                                           2007
                                                                                                                  2008
                                                                                                                         2009
                                                                                                                                2010




Source: FAO (2012) and World Bank staff calculations




                                                                                         21
Figure 5: Composition of Turkish agricultural exports by destination region, 1993-2010

   Share of total exports
   100%

                                                                                                                                           MENA

    80%

                                                                                                                                           US & Canada

    60%



                                                                                                                                           Europe
    40%



    20%
                                                                                                                                           East & South Asia Pacific
                                                                                                                                           Latin America
                                                                                                                                           Central Asia
     0%                                                                                                                                    Sub-Saharan Africa
            1993
                   1994
                          1995
                                 1996
                                        1997
                                               1998
                                                      1999
                                                             2000
                                                                    2001
                                                                           2002
                                                                                   2003
                                                                                          2004
                                                                                                 2005
                                                                                                        2006
                                                                                                               2007
                                                                                                                      2008
                                                                                                                             2009
                                                                                                                                    2010
Source: FAO (2012) and World Bank staff calculations.



Figure 6: Activity of firms exporting to the EU and to MENA by product type and level of processing, 2002-2010

                                  Exporting to the EU                                            Exporting to the Middle East and North Africa
 Number of firms                                                                  Number of firms

 5,000                                                                            5,000
                                                                                                   Tobacco, cigarettes, etc.
                                                                                                                                                                 Tobacco, cigarettes, etc.
                                                                                                   Fish, crustaceans, etc.
                                                                                                                                                                 Fish, crustaceans, etc.
 4,000                                                                            4,000            Beverages, spirits and vinegar
                                                                                                   Fats and oils (animal and vegetable)                          Beverages, spirits and vinegar

                                                                                                   Animal and dairy product                                      Fats and oils (animal and vegetable)
                                                                                                   Other prepared food                                           Animal and dairy product
 3,000                                                                            3,000
                                                                                                   Cereals and milled products                                   Other prepared food
                                                                                                   Prepared cereal and milk products                             Cereals and milled products
                                                                                                   Other                                                         Prepared cereal and milk products
 2,000                                                                            2,000
                                                                                                   Prepared fruit, nuts & vegetables                             Other
                                                                                                   Chocolates, sweets, coffee, tea, spices, etc                  Prepared fruit, nuts & vegetables
                                                                                                   Fresh vegetables                                              Chocolates, sweets, coffee, tea, spices, etc
 1,000                                                                            1,000
                                                                                                   Fresh fruit and nuts                                          Fresh vegetables
                                                                                                                                                                 Fresh fruit and nuts

     0                                                                                0
         2002 2003 2004 2005 2006 2007 2008 2009 2010                                      2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: World Bank staff calculations based on Enterprise Survey data from TurkStat.




                                                                                            22
Figure 7: Producer support by type in the EU and in Turkey, 2002-2011

 Percent of                    EU                                           Percentage of
 farmgate value
                                                                                                            Turkey
                                                                            farmgate value
40                                     Single commodity support             40
                                       Input subsidies
                                       Other support linked to production
30                                     De-coupled support
                                                                            30


20                                                                          20


10                                                                          10


 0                                                                           0
       2002 2003 2004 2005 2006 2007 2008 2009 2010 2011                          2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: OECD (2012)



Figure 8: Simple average applied MFN duties for Turkey and the EU, 2011


          Fish & fish products                                                               EU
                                                                                             Turkey
 Other agricultural products

                         Cotton

         Beverages & tobacco

     Sugars and confectionery

          Oilseeds, fats & oils

       Cereals & preparations

                     Coffee, tea

      Fruit, vegetables, plants

                  Dairy products

              Animal products

                                   0                  50                    100                       150

Source: WTO (2012)




                                                                     23
Table 1: Regional comparisons
          Agricultural GDP                          Agricultural area              Annual renewable water resources
         ($US 2000 billion )                       (million hectares)                   (billion cubic meters)

 Turkey                    88.81       Russian Federation               215.5     Turkey                  227.0
 Italy                     79.32       Algeria                           41.3     France                  200.0
 France                    68.55       Ukraine                           41.3     Italy                   182.5
 Spain                     67.45       Turkey                            39.2     Spain                   111.2
 Germany                   63.57       Morocco                           30.0     Georgia                 58.13
 Egypt                     62.75       France                            29.3     Greece                  58.0
 Russian Federation        55.32       Spain                             27.9     Morocco                 29.0
 Netherlands               30.05       Yemen                             23.5     Uzbekistan              16.3
 Morocco                   27.98       United Kingdom                    17.6     Algeria                 11.3
 Poland                    26.08       Germany                           16.9     Tunisia                  4.2
 Romania                   24.31       Poland                            16.2     Saudi Arabia             2.4
 Uzbekistan                21.33       Libya                             15.6     Jordan                   0.7
 Algeria                   20.83       Italy                             14.2     Qatar                    0.1
Source: FAO (2013). Note: Agricultural GDP is average for 2008-10; land area is an average for 2007-09; water resources
reported for 2011.




                                                                 24
Table 2: Producer subsidy equivalent for OECD and member economies, selected years 1996-2011.
                                       1996             2001              2006                   2011
 OECD average                         29.61            28.78              26.43                 18.83
 New Zealand                           0.78             0.58               0.89                  0.79
 Australia                             6.33             3.26               4.51                  2.98
 Chile                                 7.34             6.18               4.23                  3.51
 United States                        13.25            22.10              11.23                  7.66
 Mexico                                5.66            18.23              13.22                 11.56
 Israel                               18.93            20.46               7.91                 14.03
 Canada                               15.82            15.47              20.86                 14.20
 European Union                       33.83            30.18              28.97                 17.54
 Turkey                               23.11            14.29              33.39                 20.16
 Iceland                              58.24            62.58              64.49                 43.68
 Japan                                57.95            56.33              51.56                 51.63
 Korea, Rep.                          64.83            57.71              58.62                 53.26
 Switzerland                          68.60            67.31              65.28                 54.43
 Norway                               66.25            65.31              64.10                 57.69
Source: OECD (2012)



Table 3: Free Trade Agreements reached by the EU and Turkey and new agreements under consideration
Existing Free Trade Agreements                      Third Parties
Reached by both Turkey and EU                       Albania, Bosnia-Herzegovina, Chile, Egypt, Iceland, Israel, Jordan, the
                                                    Republic of Korea, Liechtenstein, Macedonia, Mauritius, Montenegro,
                                                    Morocco, Norway, Palestinian Authority, Serbia, Switzerland, Syria, and
                                                    Tunisia
Reached by EU, under consideration by Turkey        Algeria, Colombia, Costa Rica, El Salvador, Faroe Islands, Guatemala,
                                                    Honduras, Mexico, Nicaragua, Panama, Peru, Seychelles, and South Africa
Reached by Turkey, under consideration by EU        Georgia
New Free Trade Agreements
Under consideration by the EU and Turkey            African Caribbean and Pacific Group of States, Canada, Gulf Cooperation
                                                    Council countries, India, Japan, Malaysia, Mercosur, Moldova, Thailand,
                                                    Ukraine, and Vietnam
Under consideration by the EU alone                 Armenia, Association of Southeast Asian Nations, Singapore, and the United
                                                    States
Under consideration by Turkey alone                 Cameroon, Democratic Republic of the Congo, Ecuador, Ghana, Indonesia,
                                                    and Libya
Sources: European Commission (2013); World Bank (2014a)




                                                               25
Table 4: Simulation results from four steps that bring Turkey’s agricultural policies in line with the EU
                                                                             “Deepening” Stages
                                                   Agricultural         Agriculture                         plus Common
                                                  goods free of       included in the   plus third-party     Agricultural
                                                duties and quotas     Customs Union      FTAs aligned       Policy adopted
                                                        (i)                 (ii)              (iii)               (iv)
 Economic welfare
 Overall welfare                million USD            72.26               292.18              842.79           499.89
    Efficiency gains            million USD           339.08               754.14             1658.91          1208.69
    Terms of trade              million USD          -266.82              -461.95             -816.13           -708.8

 Gross domestic product
 Volumea                        percent               0.05                  0.12                0.26             0.19
 Dollar value                   percent               -0.28                -0.46                -0.72           -0.88

 Agricultural product1
 Volume                         percent               -0.42                -1.46                -2.95            1.28
 Dollar value                   percent               -0.93                -2.82                -5.23            4.03

 Trade balance (X-M)            million USD           126.92              122.39                222            -281.18
 Total Exports
 Volume                         percent                1.61                2.23                 3.37             2.96
 Dollar value, fob              percent                1.45                1.94                 2.86             2.42
 Total imports
 Volume                         percent                1.00                1.36                 1.99             1.96
 Dollar value, cif              percent                1.00                1.36                 1.99             1.96

 Private household prices       Percent               -0.34                -0.59                -0.98           -1.26

 Primary factor rents, real2    Market prices
 Overall rents and wages        percent               0.13                  0.21                0.33             1.41
     Land                       percent               -2.35                -8.20               -13.75           21.69
     Unskilled labor            percent               0.11                  0.16                0.23             1.21
     Skilled Labor              percent               0.15                  0.31                0.54             1.06
     Capital                    percent               0.17                  0.35                0.57             1.29
     Other natural resources    percent               0.67                  1.22                2.22             1.59

  Terms of trade
  Overall terms of trade         percent              -0.16                  -0.29               -0.5           -0.53
      Prices received            percent              -0.16                  -0.28              -0.49           -0.53
      Prices paid                percent               0.00                   0.00               0.00            0.00
a Deflated by a GDP price index.;1 In value-added terms; 2 Deflated by private consumption prices.

Source: Tsigas and Sahin (2013).




                                                                26
Table 5: The simulated effects of finalizing Turkey’s non-compliant Free Trade Agreements
                                                                 South                                        Costa                   El
                                                   Mexico                    Colombia       Peru     Panama            Guatemala              Honduras   Nicaragua
                                                                 Africa                                       Rica                 Salvador
 Economic Welfare
 Overall economic welfare       million USD        111.06       114.87        41.34         3.99       0.42   2.16       1.56        0.37       0.64       0.10
    Efficiency gains            million USD         9.38        10.09          5.43         0.26      -0.03   0.07       0.04        0.04       0.03       0.01
    Terms of trade (traded)     million USD        77.13        79.65         27.29         2.84       0.34   1.59       1.15        0.26       0.46       0.07
    Terms of trade (I-S)        million USD        24.56        25.13          8.62         0.90       0.11   0.50       0.37        0.08       0.15       0.02

 Gross domestic product
    Volumea                     percent             0.001        0.002        0.001         0.000    0.000    0.000      0.000      0.000      0.000       0.000
    Dollar value                percent             0.081        0.083        0.029         0.003    0.000    0.002      0.001      0.000      0.000       0.000

 Trade balance (X-M)            million USD        -87.22        -90.26       -31.74        -3.22     -0.39   -1.89      -1.32      -0.30       -0.53      -0.08

 Total exports
     Volume                     percent             0.010        0.006        0.002         0.000    0.000    0.000      0.000      0.000      0.000       0.000
     Dollar value, fob          percent             0.070        0.068        0.024         0.003    0.000    0.001      0.001      0.000      0.000       0.000

 Total imports
     Volume                     percent             0.104        0.105        0.036         0.004    0.000    0.002      0.001      0.000      0.001       0.000
     Dollar value, cif          percent             0.104        0.104        0.036         0.004    0.000    0.002      0.001      0.000      0.001       0.000

 Primary factor rents, real1
 Overall rents, wages           percent            0.085         0.087        0.030         0.003    0.000    0.002     0.001       0.000      0.001       0.000
     Land                       percent            -0.035        -0.040       -0.016        -0.001   0.000    -0.001    -0.001      0.000      0.000       0.000
     Unskilled labor            percent            0.089         0.090        0.031         0.003    0.000    0.002     0.001       0.000      0.001       0.000
     Skilled Labor              percent            0.087         0.089        0.031         0.003    0.000    0.002     0.001       0.000      0.001       0.000
     Capital                    percent            0.085         0.088        0.030         0.003    0.000    0.002     0.001       0.000      0.001       0.000
     Other natural resources    percent            -0.046        -0.034       -0.022        -0.002   0.001    0.000     0.000       0.000      0.000       0.000

  Terms of Trade
  Overall terms of trade         percent             0.061       0.063        0.022         0.002    0.000    0.001      0.001      0.000      0.000       0.000
     Prices received             percent             0.061       0.062        0.021         0.002    0.000    0.001      0.001      0.000      0.000       0.000
     Prices paid                 percent             0.000      -0.001        0.000         0.000    0.000    0.000      0.000      0.000      0.000       0.000
a Deflated by a GDP price index.;1 Deflated by private consumption prices.

Source: Tsigas and Sahin (2013).




                                                                                        27
Table 6: Summary of simulated welfare gains for adopting key trade policies
                                                          Welfare gain        Share of 2007 GDP
 Scenario
                                                          (US millions)            (percent)
 Expand the EU-Turkey Customs Union                           853                   0.14%
 FTA with Mexico                                              111                   0.02%
 FTA with South Africa                                        115                   0.02%
 FTA with Colombia                                            41                    0.01%
See Annex tables for simulation details.




                                                                     28
Annex tables
Annex table 1: List of items by processing category
 Fresh agricultural           Fresh agricultural goods                             Lightly processed         Lightly processed
                                                          Nuts and spices
 goods                        continued)                                           (continued)               (continued)
 Apples                       Mangoes, guavas             Cinnamon (canella)       Cereals, nes              Goats
 Apricots                     Okra                        Cloves                   Chick peas                Hair Coarse, nes
 Artichokes                   Oranges                     Ginger                   Chicken meat              Hair Fine
 Asparagus                    Other melons.cantalps       Groundnuts Shelled       Chickens                  Hair of Horses
 Avocados                     Papayas                     Groundnuts, with shell   Coarse goat hair          Hemp Tow Waste
 Bananas                      Peaches and nectarines      Hazelnuts Shelled        Cocoa beans               Hempseed
 Beans, green                 Pears                       Hazelnuts, with shell    Coconuts                  Hides Dry Slt Nes
 Berries, nes                 Peas, green                 Karite Nuts (Sheanuts)   Cocoon Unr.&Waste         Hides, nes
 Cabbage & other                                          Nutmeg mace
                              Pineapples                                           Coffee Husks and Skins    Hides Wet Salted, nes
 brassicas                                                cardamoms
 Carrots and turnips          Plums and sloes             Nuts, nes                Coffee, green             Hops
 Cauliflowers and broccoli    Pumpkins squash gourds      Pepper (Piper spp.)      Coir                      Horse meat
 Cherries                     Quinces                     Pistachios               Cotton Carded,Combed      Horses
                                                          Preprd Nuts,
 Chilies, peppers, green      Raspberries                                          Cotton lint               Jute
                                                          Exc.Grndnts)
 Citrus fruit, nes            Sour cherries               Spices, nes              Cotton Waste              Lard
 Cow milk, whole, fresh       Spinach                     Vanilla                  Cottonseed                Lard Stearine Oil
 Cranberries                  Stone fruit, nes            Walnuts Shelled          Crude Materials           Lentils
 Cream Fresh                  Strawberries                Walnuts, with shell      Degras                    Linseed
                                                                                   Dregs From Brewing and
 Cucumbers and gherkins       String beans                                                                   Maize
                                                                                   Dist.
 Currants                     Tangerines, mand. clem.     Lightly processed        Dry Broad & horse beans   Maize, green
 Dates                        Tomatoes                    Animals Live, nes        Duck meat                 Manila fiber (Abaca)
 Eggplants (aubergines)       Watermelons                 Asses                    Ducks                     Meal Meat
 Figs                                                     Bacon and Ham            Fat of Pigs               Meat, nes
 Fruit Fresh, nes             Nuts and spices             Barley                   Fat of Poultry            Melon seed
 Fruit, tropical fresh nes    Almonds Shelled             Beans, dry               Fiber Crops, nes          Millet
 Grapefruit (inc. pomelos)    Almonds, with shell         Beehives                 Fine Goat Hair            Mixed grain
 Grapes                       Anise, fennel, corian.      Beets for Fodder         Flax fiber and tow        Mules
 Green onions(inc.shllts)     Arecanuts                   Bird meat, nes           Flax Fiber Raw            Mustard seed
 Hen eggs, in shell           Brazil Nuts Shelled         Buckwheat                Flax Tow Waste            Natural rubber
 Kiwi fruit                   Brazil nuts, with shell     Camels                   Food Wastes               Oats
 Leeks & alliaceous
                              Cashew Nuts Shelled         Canary seed              forage Products           Offal Liver Duck
 vegetables
 Leguminous veg nes           Cashew nuts, with shell     Carobs                   Garlic                    Offal Liver Geese
 Lemons and limes             Chestnuts                   Cattle                   Geese and guinea fowls    Offal, nes
 Lettuce and chicory          Chillies and peppers, dry   Cattle meat              Goat meat                 Offal of Cattle, Edible
Source: FAO (2012) and authors’ reclassification.




                                                                  29
Annex table 1: List of items by processing category (continued)
 Lightly processed               Lightly processed           Processed items             Processed items             Processed items
 (continued)                     (continued)                 (continued)                 (continued)                 (continued)
 Offal of Horses                 Triticale                   Cake of Oilseeds, nes       Eggs Liquid                 Hair Carded/ Combed
 Oils, Fats of Animal, nes       Turkey meat                 Cake of Rapeseed            Extracts Tea, Mate, Prep    Hides Wet Salted Cattle
 Olives                          Turkeys                     Cake of Soybeans            Fat Liver (Foie Gras)       Hidesdry S.Cattle
                                                                                                                     Homogen. Cooked Fruit
 Onions, dry                     Veg Prod for Feed           Canned Mushrooms            Fat Prep, nes
                                                                                                                     Prp
 Other bird eggs, in shell       Wheat                       Cassava Dried               Fatty Acids                 Homogen.Meat Prp.
 Peas, dry                       Wool, greasy                Cassava Starch              Figs Dried                  Homogen.Veget.Prep
 Pig meat                        Wool;Hair Waste             Castor oil seed             Flour of Fruits             Honey, natural
 Pigeons, Other Birds                                        Cereal Preparations, nes    Flour of Maize              Ice Cream and Edible Ice
 Poppy seed                      Processed items             Cheese of Goat Mlk          Flour of Mixed Grain        Infant Food
 Pork                            Alfalfa Meal and Pellets    Cheese of Sheep Milk        Flour of Mustard            Isoglucose
                                                             Cheese of Whole Cow
 Potatoes                        Apple juice, concentrated                               Flour of Oilseeds           Juice of Grapefruit
                                                             Milk
 Prep of Pig Meat                Apple juice, sstrng         Cheese Skim Cow Milk        Flour of Pulses             Juice of Pineapples
 Prepared Meat, nes              Barley Flour and Grits      Chocolate Prsnes            Flour of Roots and Tubers   Juice of Tomatoes
 Pulses, nes                     Barley Pearled              Cider Etc                   Flour of Rye                Juice of Vegetables, nes
 Rabbit meat                     Beer of Barley              Cigarettes                  Flour of Wheat              Karakul Skins
 Rabbits and hares               Beeswax                     Cigars Cheroots             Food Prep, nes              Lactose
 Rapeseed                        Beet Pulp                   Citrus juice, conc          FoodPrep,Flour,Malt Extr    Leather Use&Waste
 Rice, paddy                     Beverage, Dist.Alc          Citrus juice, sng strgth    Frozen Potatoes             Lemon juice, sstrng
 Roots and Tubers, nes           Beverage Non-Alc            Cocoa Butter                Fruit Dried, nes            Linseed oil
 Rye                             Bran of Cereals             Cocoa Paste                 Fruit Juice, nes            Liver Prep.
 Safflower seed                  Bran of Maize               Cocoa husks. Shell          Fruit Prp, nes              Macaroni
 Sausages of Pig Meat            Bran of Mixed Grains        Cocoa powder & Cake         Fruit Tropical Dried, nes   Maize oil
 Sesame seed                     Bran of Pulses              Coconut (copra) oil         Fruit,Nut,Peel, Sugar Prs   Malt
 Sheep                           Bran of Rice                Coconuts Desiccated         Germ of Maize               Malt Extract
 Silk-worm cocoons               Bran of Wheat               Coffee Extracts             Germ of Wheat               Maple Sugar and Syrups
 Skin Furs                       Bread                       Coffee Roasted              Ghee Cow Milk               Margrine Short
 Sorghum                         Breakfast Cereals           Coffee Subst. Cont.Coffee   Glucose and Dextrose        Meat Beef,DrdSltd,Smkd
 Soybeans                        Butter Cow Milk             Copra                       Gluten Feed&Meal            Meat Dried, nes
 Sugar cane                      Butterm.,Curdl,Acid.Milk    Cotton Linter               Grape Juice                 Meat Extracts
 Sunflower seed                  Cake of Cottonseed          Cottonseed oil              Grapefruit juice, concent   Meat of Chicken Canned
 Sweet potatoes                  Cake of Groundnuts          Dried Mushrooms             Grease incl. Lanolin Wool   Meat-CattleBoneless
 Tallow                          Cake of Linseed             Dry Apricots                Groundnut oil               Milk Skimmed Cond
 Tobacco, unmanufactured         Cake of Maize               Eggs Dried                  Gums Natural                Milk Skimmed Dry
Source: FAO (2012) and authors’ reclassification.




                                                                      30
Annex table 1: List of items by processing category (continued)

 Processed items (continued)                        Processed items (continued)   Processed items (continued)
 Milk Skim of Cows                                  Pineapples Candy              Sugar, nes
 Milk Whole Condensed                               Plums Dried (Prunes)          Sunflower Cake
 Milk Whole Dried                                   Poppy Oil                     Sunflower oil
 Milk Whole Evaporated                              Potatoes Flour                Sweet Corn Frozen
 Mixes and Dough                                    Preparations of Beef Meat     Sweet Corn Prep,Preserv
 Molasses                                           Prepared Groundnuts           Tapioca of Potatoes
 Mushrooms and truffles                             Processed Cheese              Tea
 Must of Grapes                                     Prod.of Nat.Milk Constit      Tobacco Products, nes
 Oats Rolled                                        Raisins                       Tomato Peeled
 Offal Liver Chicken                                Rapeseed oil                  Veg.in Tem. Preservatives
 Offal of Sheep, Edible                             Res.Fatty Subs                Veg.Prep. or Pres.Frozen
 Oil Boiled Etc                                     Rice Broken                   Veg.Prod.Fresh or Dried
 Oil Citronella                                     Rice Flour                    Vegetable Frozen
 Oil Essential, nes                                 Rice Husked                   vegetable oil, nes
 Oil Hydrogenated                                   Rice Milled                   Vegetables Dehydrated
 Oil of Castor Beans                                Rubber Nat Dry                Vegetables fresh nes
 Oil of Jojoba                                      Sesame oil                    Vegetables in Vinegar
 Oil of Olive Residues                              Sheep meat                    Vegetables Preserved, nes
 Oilseeds, nes                                      Silk Raw                      Vermouths & Similar
 Olive oil, virgin                                  Skins Wet Salted Calves       Wafers
 Olive Residues                                     Skins Wet Salted Goats        Waters,Ice Etc
 Olives Preserved                                   Skins With Wool Sheep         Waxes Vegetable
 Orange juice, conc.                                Skinsdry S.Calves             Whey Cheese
 Orange juice, single strength                      Skinsdry Slt Goat             Whey Condensed
 Other Fructose and Syrup                           Skinsdry Sltsheep             Whey Dry
 Palm kernel oil                                    Soya Sauce                    Whey Fresh
 Palm kernels                                       Soybean oil                   Wine
 Palm oil                                           Spermaceti                    Wool Degreased
 Paste of Tomatoes                                  Straw Husks                   Wool Shoddy
 Pastry                                             Sugar beet                    Yogh Conc.Or Not
 Peanut Butter                                      Sugar Confectionery           Yoghurt
 Pet Food                                           Sugar Raw Centrifugal
 Pineapple Juice Concentraded                       Sugar Refined
Source: FAO (2012) and authors’ reclassification.




                                                                          31
Annex table 2: Turkey’s Most Favored Nation tariffs for agriculture, 2011, Simple Averages
                                                    Final bound duties                             MFN applied duties                   Imports
                                                 Duty free                  Binding                  Duty free                  Share         Duty free
                                     AVG                        Max                          AVG                        Max
                                                   (%)                    Coverage (%)                  (%)                      (%)             (%)
 Animal products                     132.8         0.0          225           100            110.4      7.3             225.0    0.4            16.4
 Dairy products                      169.8         0.0          180           100            128.6      0.0             180.0    0.1             0.0
 Fruit, vegetables, plants            38.8         0.0          146           100             33.2      8.8             146.0    0.5            18.7
 Coffee, tea                          80.3         0.0          168           100             31.6      8.3             145.0    0.3            41.5
 Cereals & preparations               68.6         0.0          180           100             32.9      7.2             130.0    1.0             3.7
 Oilseeds, fats & oils                24.4         0.0           68           100             15.1     16.5              50.0    1.7             8.1
 Sugars and confectionery            107.3         0.0          135           100             88.6      1.1             135.0    0.0            13.8
 Beverages & tobacco                  79.6         0.0          167           100             36.0     20.1              75.0    0.3             8.5
 Cotton                               10.9         0.0           13           100             0.0      100.0             0.0     1.1            100.0
 Other agricultural products          30.8         0.2           75           100             10.9     39.5              75.0    0.6            31.4
 Fish & fish products                 50.0         0.0           82           21.7            32.8     10.8              82.0    0.2             6.9
 Minerals & metals                    18.4         1.4           50           22.8            2.9      38.2              22.0    22.9           53.9
 Petroleum                            2.7          0.0           4            20.0            3.1      20.0              5.0     6.9            39.9
 Chemicals                            16.9         4.3          128           66.1            4.7      20.0              17.0    15.2           27.6
 Wood, paper, etc.                    26.5         3.6           62           44.1            0.9      82.0              10.0    3.3            84.7
 Textiles                             24.5         0.0           92           23.0            6.5       2.6              12.0    5.1             2.8
 Clothing                             27.3         0.0           40           3.4             11.5      0.0              12.0    1.6             0.0
 Leather, footwear, etc.              23.0         0.0           40           48.5            2.4      40.0              9.0     2.1            34.1
 Non-electrical machinery             10.9         11.0          25           67.1            1.8      24.6              10.0    13.3           29.9
 Electrical machinery                 11.0         38.3          50           67.7            2.7      25.5              14.0    8.8            44.6
 Transport equipment                  17.9         0.0           37           56.9            4.3      13.7              22.0    11.2           15.6
 manufactures, n.e.s.                 14.1         23.6          47           43.2            2.6      21.9              14.0    3.5            47.2
Source: World Tariff Profiles 2012 Geneva, World Trade Organization




                                                                                   32
Annex table 3: EU’s Most Favored Nation tariffs for agriculture, 2011
                                                    Final bound duties                         MFN applied duties                  Imports
                                                 Duty free                 Binding               Duty free                 Share         Duty free
                                     AVG                        Max                     AVG                         Max
                                                   (%)                   Coverage (%)               (%)                     (%)             (%)
 Animal products                      24.3         20.6         140          100        23.0         23             23.8    0.4             8.3
 Dairy products                       57.6         0.0          226          100        55.2       55.2              0      0.0             0.0
 Fruit, vegetables, plants            10.4         22.8         170          100        11.5       11.5             18.8    1.5            12.5
 Coffee, tea                          6.2          27.1          25          100        6.2         6.2             27.1    0.9            77.1
 Cereals & preparations               20.3         6.3          167          100        32.9       16.3              12     0.4             2.3
 Oilseeds, fats & oils                6.6          48.2         171          100        15.1        7.1             43.5    1.4            72.7
 Sugars and confectionery             28.3         0.0          131          100        88.6       29.1             0.0     0.1             0.0
 Beverages & tobacco                  21.8         23.0         175          100        36.0       19.2             19.8    0.6            16.8
 Cotton                               0.0         100.0          0           100        0.0           0             100     0.0            100.0
 Other agricultural products          4.4          65.9         131          100        10.9        4.8             65.1    0.4            68.0
 Fish & fish products                 10.9         12.3          26          100        32.8       10.3             16.4    1.3             6.3
 Minerals & metals                    2.0          49.6          12          100        2.9           2             49.9    16.6           72.3
 Petroleum                            2.0          50.0          5           100        3.1         2.7             29.7    20.3           87.4
 Chemicals                            4.6          20.0          17          100        4.7         4.6             21.7    9.5            46.5
 Wood, paper, etc.                    0.9          84.1          10          100        0.9         0.9             81.2    2.8            86.3
 Textiles                             6.5          3.4           12          100        6.5         6.6             2.1     2.2             2.3
 Clothing                             11.5         0.0           12          100        11.5       11.5             0.0     4.4             0.0
 Leather, footwear, etc.              4.2          27.8          17          100        2.4         4.2             22.7    2.4            17.8
 Non-electrical machinery             1.7          26.5          10          100        1.8         1.9             21.4    10.9           56.4
 Electrical machinery                 2.4          31.5          14          100        2.7         2.8             20.4    12.3           59.8
 Transport equipment                  4.1          15.7          22          100        4.3         4.3             12.7    5.1            27.1
 manufactures, n.e.s.                 2.5          25.7          14          100        2.6         2.7             20.5    6.4            52.6
Source: World Tariff Profiles 2012 Geneva, World Trade Organization




                                                                                 33
Annex table 4: CGE model regions for Scenario 1 simulations
 Economies in CGE model                     GTAP Data V 8.1 countries/regions
 1   Turkey                                 Turkey
                                            Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
 2     EU-27                                Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain,
                                            Sweden, United Kingdom, Austria, Belgium
 3     EFTA                                 Switzerland, Norway, Rest of EFTA
 4     Albania                              Albania
 5     Croatia                              Croatia
 6     Israel                               Israel
 7     Egypt                                Egypt
       Rest of North Africa, XNF
 8                                          XNF
       (Algeria, Lybia, Western Sahara)
       Rest of Western Asia, XWS
       (Iraq, Jordan, Lebanon,
 8                                          XWS
       Palestinian Territories, Syria,
       Yemen)
 9     Morocco                              Morocco
 10    Tunisia                              Tunisia
 11    Chile                                Chile
 12    Mauritius                            Mauritius
 13    South Africa                         South Africa
 14    Korea, Rep.                          Korea, Rep.
 15    Mexico                               Mexico
 16    Certain EPA economies                Cameroon, Cote d'Ivoire, Ghana, Kenya, Botswana, Namibia
                                            Cambodia, Lao People's Democratic Republic, Bangladesh, Nepal, Ecuador, Benin, Burkina Faso, Guinea,
       Certain "Everything but Arms"
 17                                         Senegal, Togo, Central Africa, Ethiopia, Madagascar, Malawi, Mozambique, Rwanda, Tanzania, Uganda,
       economies
                                            Zambia
                                            China, Mongolia, Indonesia, Philippines, Thailand, Viet Nam, India, Pakistan, Sri Lanka, Bolivia, Colombia,
       Certain low and lower middle
 18                                         Paraguay, Peru, Costa Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador, Ukraine, Kyrgyztan,
       income economies
                                            Armenia, Azerbaijan, Georgia, Islamic Republic of Iran, Nigeria, , Zimbabwe
                                            Australia, New Zealand, Hong Kong SAR, China, Japan, Taiwan, China, Malaysia, Singapore, Canada,
       Certain high and upper income
 19                                         Argentina, Brazil, Uruguay, Venezuela, Belarus, Russian Federation, Kazakhstan, Bahrain, Kuwait, Oman,
       economies
                                            Qatar, Saudi Arabia, United Arab Emirates
 20    United States of America             United States of America
                                            Rest of Oceania, Rest of East Asia, Rest of Southeast Asia, Rest of South Asia, Rest of North America, Rest of
                                            South America, Rest of Central America, Caribbean, Rest of Eastern Europe, Rest of Europe, Rest of Former
 21    Rest of the world
                                            Soviet Union, Rest of Western Africa, South Central Africa, Rest of Eastern Africa, Rest of South African
                                            Customs, Rest of the World
Source: GTAP, https://www.gtap.agecon.purdue.edu/databases/regions.asp?Version=8.211. Note: This regional specification was used for running
Scenario 1 experiments; a different regional specification, which identified individual trade partners, was used for Scenario 2 experiments (see table 3).




                                                                              34
Annex table 5: CGE model regions for Scenario 2 simulations
  1            Turkey
  2             EU27
  3            Mexico
  4         South Africa
  5           Colombia
  6              Peru
  7            Panama
  8          Costa Rica
  9          Guatemala
  10         El Salvador
  11          Honduras
  12          Nicaragua
  13         Korea, Rep.
  14            USA
  15        Rest of World
Source: GTAP, https://www.gtap.agecon.purdue.edu/databases/regions.asp?Version=8.211.




                                                                     35
Annex table 6. Export effects for Turkish economy from experiments of widening the customs union to cover trade in agricultural products,
change in dollar value of Turkish exports to the world, by sector
                                            GTAP model data for                                Simulations of widening customs union*
 Sector                                     Turkey's exports, fob                i)                       i) and ii)               i), ii) and iii)      i), ii), iii) and iv)
                                                                          million                  million                    million                  million
                                                   million USD             USD        percent       USD            percent     USD             percent  USD              percent
  Paddy rice                                             0.2                 0.5       323.7          0.5            343.7       0.6             370.5    2.4            1,569.3
  Wheat                                                 24.0                12.4        51.7         17.0             70.8      18.7              77.8   30.6             127.1
  Cereal grains nec                                     49.2                 1.0        1.9           1.5             3.1        2.0               4.0    5.1              10.4
  Vegetables, fruit, nuts                             3,143.0              230.3        7.3         270.9             8.6      328.9              10.5  930.4              29.6
  Oil seeds                                            105.2                 1.1        1.1           4.0             3.8        7.2               6.9  -62.4             -59.4
  Sugar cane, sugar beet                                 0.1                 0.0        0.2           0.0             2.3        0.0               5.1    0.1              63.0
  Plant-based fibers                                   229.7                 1.7        0.7           4.1             1.8        7.2               3.1   38.7              16.9
  Crops nec                                            631.8                18.6        2.9          39.8             6.3       89.0              14.1  425.7              67.4
  Bovine cattle, sheep and goats, horses                 8.8                 0.1        1.6           0.4             4.0        0.6               6.9    6.7              76.4
  Animal products nec                                  124.4                 1.0        0.8           2.1             1.7        3.3               2.7   16.1              12.9
  Raw milk                                              14.1                 0.5        3.3           1.2             8.4        2.0              14.1    5.2              37.1
  Wool, silk-worm cocoons                                6.6                 0.3        4.7           0.9             13.9       1.5              22.8   12.4             189.0
  Forestry                                              27.0                 0.1        0.5           0.2             0.8        0.4               1.4    0.1               0.2
  Fishing                                              154.8                 0.4        0.2           0.5             0.3        0.6               0.4    0.2               0.1
  Coal                                                   0.1                 0.0        -0.2          0.0             -0.2       0.0              -0.4    0.0              -0.2
  Oil                                                    9.5                 0.0        0.2           0.0             0.5        0.1               0.6    0.0               0.3
  Gas                                                    0.0                 0.0        -0.5          0.0             -0.6       0.0              -1.1    0.0              -0.3
  Minerals nec                                        1,764.2                0.6        0.0           0.9             0.1        1.5               0.1   -0.1               0.0
  Bovine meat products                                   8.4                 0.2        2.7           0.5             5.4        1.1              13.5    3.5              41.6
  Meat products nec                                     44.3                 2.5        5.6           4.4             9.8        6.4              14.4   14.1              31.8
  Vegetable oils and fats                              400.1               185.5        46.4        212.8             53.2     235.4              58.8  212.4              53.1
  Dairy products                                       169.2               110.9        65.5        118.4             70.0     127.2              75.2  133.7              79.0
  Processed rice                                         1.9                 1.2        65.6          1.3             66.8       1.3              71.6    1.4              73.3
  Sugar                                                 39.0               341.3       875.0        357.7            917.2     375.0             961.6  389.5             998.9
  Food products nec                                   3,518.9              160.0        4.5         228.4             6.5      274.7               7.8  295.8               8.4
  Beverages and tobacco products                       409.5                 8.1        2.0           9.9             2.4       15.3               3.7   16.8               4.1
  Textiles                                           13,167.4              109.2        0.8         173.8             1.3      310.0               2.4  180.1               1.4
  Wearing apparel                                     8,560.4               74.3        0.9         114.4             1.3      221.2               2.6   86.8               1.0
  Leather products                                     505.4                 8.4        1.7          11.4             2.3       37.8               7.5   33.9               6.7
  Wood products                                       1,616.4               11.4        0.7          17.5             1.1       31.0               1.9    4.0               0.2
  Paper products, publishing                           947.2                 6.4        0.7           9.9             1.0       17.5               1.8    3.1               0.3
  Petroleum, coal products                            1,749.7                1.2        0.1           1.8             0.1        3.0               0.2    0.3               0.0
  Chemical, rubber, plastic products                  7,202.9               47.2        0.7          79.0             1.1      139.0               1.9   46.5               0.6
  Mineral products nec                                3,510.0               19.9        0.6          30.1             0.9       53.3               1.5    4.1               0.1
  Ferrous metals                                      8,785.4               38.7        0.4          59.1             0.7      104.4               1.2   11.5               0.1
  Metals nec                                          2,543.7               16.0        0.6          25.1             1.0       44.3               1.7    5.0               0.2
  Metal products                                      4,304.0               32.6        0.8          50.0             1.2       89.1               2.1   11.5               0.3
  Motor vehicles and parts                           16,198.1               94.6        0.6         142.6             0.9      249.5               1.5   25.8               0.2
  Transport equipment nec                             1,923.3               21.8        1.1          33.3             1.7       58.6               3.0    4.9               0.3
  Electronic equipment                                2,881.5               29.7        1.0          45.7             1.6       81.2               2.8    9.6               0.3
  Machinery and equipment nec                        11,973.1              113.5        0.9         175.8             1.5      313.0               2.6   57.9               0.5
  Manufactures nec                                    2,052.3               14.6        0.7          22.5             1.1       39.9               1.9    4.7               0.2
  Electricity                                          212.6                 0.8        0.4           1.2             0.6        2.1               1.0    0.2               0.1
  Gas manufacture, distribution                          0.2                 0.0        0.8           0.0             1.3        0.0               2.3    0.0               0.2
  Water                                                 13.9                 0.1        0.9           0.2             1.4        0.3               2.4    0.1               0.5
  Construction                                         807.0                 3.7        0.5           6.2             0.8       10.8               1.3    1.3               0.2
  Trade                                               1,881.7               11.9        0.6          19.3             1.0       36.7               1.9   14.8               0.8
  Transport nec                                      10,566.2               45.4        0.4          70.1             0.7      121.9               1.2   24.3               0.2
  Water transport                                      104.3                 0.5        0.4           0.7             0.7        1.2               1.2    0.4               0.4
  Air transport                                       4,508.6               21.0        0.5          32.9             0.7       65.5               1.5   27.1               0.6
  Communication                                        591.7                 3.0        0.5           4.4             0.7        7.6               1.3    0.3               0.1
  Financial services nec                               849.9                 4.3        0.5           6.7             0.8       11.5               1.4    1.3               0.1
  Insurance                                            846.1                 4.3        0.5           6.7             0.8       11.7               1.4    1.5               0.2
  Business services nec                                736.8                 3.8        0.5           6.0             0.8       10.4               1.4    2.0               0.3
  Recreational and other services                     1,398.9                6.9        0.5          10.6             0.8       18.4               1.3    2.6               0.2
  Public Admin., Def., Educ., Health                  1,590.1                8.9        0.6          14.5             0.9       24.5               1.5    5.8               0.4
  Total                                             122,912.7             1,832.3       1.5        2,448.8            2.0     3,615.5              2.9 3,049.6              2.5
* Experiments of widening the EU-Turkey customs union to cover trade in agricultural products: The CGE model simulated the impacts of: i) EU-Turkey trade in
agricultural products becoming duty- and quota-free; ii) Turkey adopting EU tariffs and TRQs on agricultural imports from the rest of the world (the EU common external
tariff); iii) Turkey adopting the agricultural components of EU free trade agreements and the GSP; and, iv) Turkey adopting the Common Agricultural Policy.




                                                                                      36
Annex table 7. Imports effects for Turkish economy from experiments of widening the customs union to cover trade in agricultural products, change in
dollar value of Turkish imports from the world, by sector
                                   GTAP model data for          Simulations of widening customs union*
 Sector                            Turkey's imports, cif             i)                       i) and ii)              i), ii) and iii)         i), ii), iii) and iv)
                                                           million                     million                   million                    million
                                       million USD                       percent                       percent                    percent                      percent
                                                           USD                          USD                       USD                        USD
 Paddy rice                                  4.4            0.7            16.0          0.8              17.1     0.5               12.2     -0.8              -17.2
 Wheat                                     558.5           197.4           35.3         557.4             99.8    544.1              97.4    466.9               83.6
 Cereal grains nec                         262.0           116.9           44.6         159.9             61.0    160.3              61.2    151.0               57.6
 Vegetables, fruit, nuts                   336.7            53.2           15.8          77.1             22.9    329.7              97.9    244.5               72.6
 Oil seeds                                 891.9            11.9           1.3           11.2             1.3      9.4               1.1     149.0               16.7
 Sugar cane, sugar beet                      1.7            0.0            1.0           0.0              0.3      0.6               38.0     0.2                12.5
 Plant-based fibers                       1,261.4           -5.0           -0.4          -9.4             -0.7    -15.5              -1.2    -66.0               -5.2
 Crops nec                                 583.0            76.7           13.2         115.5             19.8    291.9              50.1    188.5               32.3
 Cattle, sheep, goats, horses               26.9            1.0            3.9           1.4              5.4      0.8               3.0      -6.1              -22.7
 Animal products nec                       398.8            2.8            0.7           0.4              0.1      -1.5              -0.4    -28.1               -7.0
 Raw milk                                    3.6            -0.1           -4.0          -0.2             -6.8     -0.4             -10.7     -0.7              -19.5
 Wool, silk-worm cocoons                    21.9            -0.2           -1.1          -0.3             -1.2     -0.4              -1.9     -0.6               -2.6
 Forestry                                  305.6            -0.6           -0.2          -0.8             -0.3     -1.2              -0.4     -0.6               -0.2
 Fishing                                    44.3            -0.1           -0.2          -0.1             -0.3     -0.2              -0.4     0.0                -0.1
 Coal                                     1,541.6           2.9            0.2           4.0              0.3      7.6               0.5      1.7                0.1
 Oil                                     11,811.1           -3.7           0.0          -19.1             -0.2     -9.3              -0.1    -10.7               -0.1
 Gas                                      5,942.0           9.4            0.2           14.8             0.2      28.5              0.5      4.5                0.1
 Minerals nec                              987.1            2.9            0.3           4.6              0.5      8.5               0.9      1.8                0.2
 Bovine meat products                      121.2            39.0           32.2          8.0              6.6     275.3            227.1     238.7              196.9
 Meat products nec                         101.3           250.5          247.3         252.3            249.1    251.1            247.9     237.3              234.3
 Vegetable oils and fats                   828.4            30.7           3.7          313.1             37.8    410.3              49.5    431.8               52.1
 Dairy products                             94.5           781.7          826.9         783.1            828.5   1,105.9          1,169.9   1,092.8            1,156.1
 Processed rice                             97.2            33.2           34.1          33.4             34.4     37.4              38.5     37.0               38.1
 Sugar                                      38.4            12.2           31.7          9.5              24.9     21.8              56.9     20.7               53.9
 Food products nec                        1,158.6          256.6           22.1         249.8             21.6    301.1              26.0    296.4               25.6
 Beverages and tobacco prods               566.8            2.2            0.4           3.0              0.5      1.5               0.3      0.1                0.0
 Textiles                                 7,603.0           6.1            0.1           9.7              0.1      24.5              0.3      4.0                0.1
 Wearing apparel                          2,008.8           -8.0           -0.4         -11.7             -0.6    -21.0              -1.0     -9.4               -0.5
 Leather products                          979.2            -6.4           -0.7          -8.1             -0.8    -23.5              -2.4    -22.5               -2.3
 Wood products                            1,405.5           -5.0           -0.4          -6.3             -0.4     -9.9              -0.7     -4.4               -0.3
 Paper products, publishing               3,074.1           -8.2           -0.3         -11.7             -0.4    -18.4              -0.6     -6.6               -0.2
 Petroleum, coal products                 7,191.6           -1.6           0.0           -5.1             -0.1     -0.8              0.0      -1.2               0.0
 Chemical, rubber, plastic prods         24,762.4          -28.3           -0.1         -56.1             -0.2    -83.6              -0.3    -33.0               -0.1
 Mineral products nec                     1,450.6           -5.7           -0.4          -8.0             -0.6    -13.4              -0.9     -0.6               0.0
 Ferrous metals                          13,786.9           22.6           0.2           37.7             0.3      69.7              0.5      15.0               0.1
 Metals nec                              10,154.0           24.9           0.2           40.0             0.4      74.4              0.7      3.4                0.0
 Metal products                           2,680.3           -5.3           -0.2          -8.8             -0.3    -14.4              -0.5     -3.4               -0.1
 Motor vehicles and parts                16,491.2          -24.3           -0.1         -34.9             -0.2    -52.7              -0.3     -8.2               0.0
 Transport equipment nec                  2,924.3           -3.8           -0.1          -4.7             -0.2     -7.0              -0.2     2.2                0.1
 Electronic equipment                     6,420.2          -22.3           -0.3         -31.8             -0.5    -53.8              -0.8     -5.7               -0.1
 Machinery and equipment nec             26,909.4          -64.9           -0.2         -89.5             -0.3   -150.1              -0.6    -11.8               0.0
 Manufactures nec                         1,396.0           -5.7           -0.4          -8.3             -0.6    -13.6              -1.0     -3.4               -0.2
 Electricity                                31.0            0.0            -0.1          0.0              -0.1     0.0               -0.1     0.0                0.1
 Gas manufacture, distribution            2,762.0           -1.3           0.0           -1.4             -0.1     -0.5              0.0      -3.7               -0.1
 Water                                      15.8            -0.2           -1.0          -0.2             -1.2     -0.3              -2.0     -0.2               -1.1
 Construction                              154.2            -0.6           -0.4          -0.9             -0.6     -1.5              -1.0     0.0                0.0
 Trade                                     716.9            -3.0           -0.4          -4.6             -0.6     -8.1              -1.1     -4.2               -0.6
 Transport nec                            1,008.5           -2.9           -0.3          -4.3             -0.4     -6.9              -0.7     -2.3               -0.2
 Water transport                            77.4            -0.1           -0.2          -0.2             -0.2     -0.3              -0.4     -0.1               -0.2
 Air transport                            1,970.3           -3.4           -0.2          -5.0             -0.3     -8.3              -0.4     -5.1               -0.3
 Communication                             423.8            -1.3           -0.3          -1.8             -0.4     -2.9              -0.7     -0.6               -0.1
 Financial services nec                   1,103.8           -3.5           -0.3          -5.2             -0.5     -8.0              -0.7     -2.4               -0.2
 Insurance                                1,036.0           -2.2           -0.2          -3.4             -0.3     -5.2              -0.5     -2.0               -0.2
 Business services nec                    1,514.4           -4.1           -0.3          -6.3             -0.4    -10.0              -0.7     -2.4               -0.2
 Recreational and other services           574.4            -1.4           -0.2          -2.0             -0.3     -3.1              -0.5     -1.2               -0.2
 Public Admin., Def., Educ.,
                                          1,414.2           -5.5           -0.4          -8.5           -0.6      -13.4           -0.9        -6.2             -0.4
 Health
 Total                                  170,029.0          1,706.6         1.0         2,327.8          1.4      3,395.9           2.0      3,333.2            2.0
* Experiments of widening the EU-Turkey customs union to cover trade in agricultural products: The CGE model simulated the impacts of: i) EU-Turkey
trade in agricultural products becoming duty- and quota-free; ii) Turkey adopting EU tariffs and TRQs on agricultural imports from the rest of the world
(the EU common external tariff); iii) Turkey adopting the agricultural components of EU free trade agreements and the GSP; and iv) Turkey adopting the
Common Agricultural Policy.




                                                                             37
 Annex table 8: EU27 average ad valorem equivalent import tariff rates, 2007
                  ------ Exporter -------
                                                                                                                                    Korea,
 product           Turkey                   EFTA   Albania   Israel   Egypt        Morocco       Tunisia     Chile      Mauritius    Rep.    Mexico   EFTA to Mexico
                                                                            ---------- 2007 (rates percent) -----------
 farm products       2.56                   2.32   0.00      5.11      5.24           8.87        3.95       3.09         0.52      7.63      1.74         5.61
 processed food      3.45                   5.25   13.94     6.50      9.06           1.89        31.57      5.00        21.25      10.07     2.52         7.13
 other products      0.00                   0.03   0.00      0.01      0.01           0.00        0.00       0.02         0.00      3.50      0.00         0.63
 All products        0.21                   0.21   0.64      0.59      0.71           1.69        1.75       0.77         6.52      3.52      0.13         0.96
                                                                         ---------- 2011 rates (percent) -----------
 farm products       1.72                   1.75   0.78      0.00     2.04           1.07        7.96       1.91         0.00       0.53     1.79         3.64
 processed food      2.40                   5.05   10.36     0.00     2.84           3.35        2.57       6.68         0.00       4.95     3.21         4.62
 other products      0.00                   0.04   0.00      0.00     0.00           0.00        0.00       0.01         0.00       1.14     0.00         0.21
 All products        0.16                   0.25   0.38      0.00     0.21           0.20        1.38       1.07         0.00       1.16     0.16         0.46
Source: GTAP database, version 9




                                                                                  38
Annex Table 9: Detailed net trade simulation results for Scenario 2.
      Sector (percentage change)               Mexico      South Africa   Colombia    Peru    Panama    Costa Rica   Guatemala   El Salvador
 1    Paddy rice                               -0.568         -0.580       -0.195    -0.021    -0.002    -0.011       -0.008        -0.002
 2    Wheat                                    -0.517         -0.528       -0.179    -0.019    -0.002    -0.010       -0.008        -0.002
 3    Cereal grains nec                        -0.156         -0.158       -0.053    -0.006    -0.001    -0.003       -0.002        0.000
 4    Vegetables, fruit, nuts                  -0.215         -0.221       -0.074    -0.008    -0.001    -0.004       -0.003        -0.001
 5    Oil seeds                                -0.239         -0.243       -0.082    -0.009    -0.001    -0.005       -0.004        -0.001
 6    Sugar cane, sugar beet                   -0.342         -0.355       -0.119    -0.013    -0.002    -0.007       -0.005        -0.001
 7    Plant-based fibers                       -0.228         -0.229       -0.077    -0.008    -0.001    -0.004       -0.003        -0.001
 8    Crops nec                                -0.375         -0.382       -0.130    -0.014    -0.002    -0.007       -0.006        -0.001
 9    Bovine cattle, sheep and goats, horses   -0.282         -0.286       -0.096    -0.010    -0.001    -0.005       -0.004        -0.001
 10   Animal products nec                      -0.168         -0.171       -0.058    -0.006    -0.001    -0.003       -0.002        -0.001
 11   Raw milk                                 -0.500         -0.510       -0.172    -0.018    -0.002    -0.010       -0.007        -0.002
 12   Wool, silk-worm cocoons                  -0.793         -0.795       -0.237    -0.031    -0.003    -0.013       -0.012        -0.002
 13   Forestry                                 -0.025         -0.135       -0.099    -0.010    -0.003    -0.006       -0.004        -0.001
 14   Fishing                                  -0.151         -0.156       -0.054    -0.006    -0.001    -0.003       -0.002        -0.001
 15   Coal                                     -0.156         -0.138       -0.027    -0.008    -0.002    -0.003       -0.004        0.000
 16   Oil                                      -0.087         -0.078       -0.013    -0.002    0.000     -0.001       -0.001        0.000
 17   Gas                                      0.032          0.025        0.016     -0.006    0.000      0.001       -0.001        0.000
 18   Minerals nec                             -0.064         -0.079       -0.025    -0.003    -0.001    -0.002       -0.002        0.000
 19   Bovine meat products                     -0.550         -0.564       -0.194    -0.020    -0.002    -0.011       -0.008        -0.002
 20   Meat products nec                        -0.631         -0.647       -0.222    -0.023    -0.003    -0.013       -0.009        -0.002
 21   Vegetable oils and fats                  -0.388         -0.399       -0.137    -0.014    -0.002    -0.008       -0.006        -0.001
 22   Dairy products                           -0.518         -0.533       -0.183    -0.019    -0.002    -0.011       -0.008        -0.002
 23   Processed rice                           -0.341         -0.351       -0.121    -0.013    -0.001    -0.007       -0.005        -0.001
 24   Sugar                                    -0.361         -0.372       -0.128    -0.013    -0.002    -0.007       -0.005        -0.001
 25   Food products nec                        -0.261         -0.269       -0.092    -0.010    -0.001    -0.005       -0.004        -0.001
 26   Beverages and tobacco products           -0.159         -0.164       -0.056    -0.006    -0.001    -0.003       -0.002        -0.001
 27   Textiles                                 0.394          0.229        -0.032    0.027     -0.001    -0.006        0.011        -0.001
 28   Wearing apparel                          1.062          0.443        -0.129    -0.002    -0.001    -0.005       -0.005        -0.001
 29   Leather products                         0.009          -0.045       -0.170    -0.018    -0.002    -0.002        0.001        -0.002
 30   Wood products                            -0.268         0.198        -0.115    -0.014    0.006     -0.007       -0.005        -0.001
 31   Paper products, publishing               -0.321         3.073        -0.087    0.000     0.001     -0.007       -0.005        -0.001
 32   Petroleum, coal products                 0.304          0.217        -0.013    -0.001    0.000     -0.001        0.001        0.000
 33   Chemical, rubber, plastic products       -0.148         -0.104       -0.049    0.019     0.000     -0.003        0.003        0.001
 34   Mineral products nec                     -0.121         -0.238       -0.099    0.003     0.030      0.032        0.028        0.002
 35   Ferrous metals                           -0.247         -0.258       -0.089    -0.009    -0.001    -0.005       -0.003        -0.001
 36   Metals nec                               0.015          -0.329       -0.114    -0.012    -0.002    -0.007       -0.005        -0.001
 37   Metal products                           -0.305         -0.287       -0.126    -0.002    -0.001    -0.008       -0.005        -0.001
 38   Motor vehicles and parts                 0.411          0.626        0.532     0.002     -0.001    -0.004        0.001        0.002
 39   Transport equipment nec                  -0.571         -0.590       -0.203    -0.021    -0.002     0.220       -0.007        -0.002
 40   Electronic equipment                     -0.506         -0.479       -0.172    -0.019    -0.002    -0.011       -0.008        -0.002
 41   Machinery and equipment nec              -0.258         -0.194       0.007     0.006     -0.001    -0.006        0.000        0.003
 42   Manufactures nec                         0.059          0.178        -0.047    0.009     -0.002     0.007        0.003        -0.001
 43   Electricity                              -0.228         -0.234       -0.079    -0.008    -0.001    -0.005       -0.003        -0.001
 44   Gas manufacture, distribution            -0.454         -0.467       -0.161    -0.017    -0.002    -0.009       -0.007        -0.002




                                                                          39
Annex Table 9: Detailed net trade simulation results for Scenario 2 (continued)
      Sector                               Mexico      South Africa   Colombia    Peru     Panama   Costa Rica   Guatemala   El Salvador

 45   Water                                -0.452         -0.466       -0.160     -0.017   -0.002     -0.009      -0.007       -0.001
 46   Construction                         -0.267         -0.274       -0.094     -0.010   -0.001     -0.005      -0.004       -0.001
 47   Trade                                -0.313         -0.322       -0.110     -0.011   -0.001     -0.006      -0.005       -0.001
 48   Transport nec                        -0.214         -0.221       -0.076     -0.008   -0.001     -0.004      -0.003       -0.001
 49   Water transport                      -0.079         -0.081       -0.027     -0.003   0.000      -0.002      -0.001       0.000
 50   Air transport                        -0.233         -0.240       -0.083     -0.009   -0.001     -0.005      -0.003       -0.001
 51   Communication                        -0.316         -0.326       -0.113     -0.012   -0.001     -0.007      -0.005       -0.001
 52   Financial services nec               -0.305         -0.313       -0.108     -0.011   -0.001     -0.006      -0.005       -0.001
 53   Insurance                            -0.306         -0.314       -0.108     -0.011   -0.001     -0.006      -0.005       -0.001
 54   Business services nec                -0.295         -0.304       -0.105     -0.011   -0.001     -0.006      -0.004       -0.001
 55   Recreational and other services      -0.288         -0.296       -0.102     -0.011   -0.001     -0.006      -0.004       -0.001
      Public Administration, Defense,
 56                                        -0.324         -0.332       -0.114     -0.012   -0.001     -0.006      -0.005       -0.001
      Education, Health




                                                                      40