Economic implications for Turkey of a Customs Union with the European Union

With a CGE model, we quantify the impact of the Customs Union between Turkey and the European Union (EU), Since the average tariff on non-agricultural imports will be less than 2 percent, the trade diversion costs of the Customs Union are quite small. Improved access to third country markets (through reciprocal preferential access agreements of the EU) results in the largest gains from the Customs Union, estimated overall to be about 1-1.5 percent of Turkish GDP. Applying the VAT uniformly (rather than raising it to compensate for the tariff revenue loss) will increase the welfare gain from joining the EU. (C) 1997 Elsevier Science B.V.