EU-USA TTIP and Turkey – 2

In the first blog post, I discussed about TTIP between the US and the EU and Turkey`s concerns about whether Turkey should be a part of that agreement or not. In this post, I will analyze the possible effect of TTIP. While looking at the trade data of Tur[HT1] key, the EU has a 50 % portion in Turkey`s export and a 40% portion in its import. The US has only a 4 % portion in the export and a 6 % portion in the import. Compared to 2004 data, in 2013 Turkey foreign trade with the US and the EU has decreased. In this period, Turkey increased trade relationship with China and Middle East countries such as Egypt, Iraq and Libya.

[HT1]

Table.1 Trade Volumes of Turkey`s Trade Partners[1] XM

In a study [2], possible effects of TTIP on Turkey was analyzed by using the Global Trade Analysis Project (GTAP) database-7 and a general equilibrium model. The paper studied various scenarios of TTIP on the US’s and the EU’s GDP. The first step is the abolition of the tariff and quota.  Since the current tariffs between the US and the EU are low, TTIP is also expected to reduce non-tariff barriers in agriculture, industry and service sectors[3]. Thus, the second step is to reduce those non-tariff barriers, gradually and the third step is completely reducing them. Additionally, last step includes the spillover effects of reducing non-tariff barriers for third parties as a result of legislative alignments.

According to the model, as explained in table 2, TTIP is expected to affect the US’s GDP by varying between 0.004 % and 0.3 % and the EU’s GDP by varying between 0.009 % and 0.28 % without the assumption of including Turkey. If Turkey is included in TTIP, effects of TTIP on the US and the EU will increase by fairly small percentage. Since Turkey and the EU have a Custom Union Agreement (CUA), in the first scenario, there will not any effect for the EU. Consequently Turkey’s participation will increase benefits of TTIP for both the US and the EU. This result confirms the argument that free trade and economic globalization generates benefits for everyone.

Table.2 Effects of TTIP on the USA and the EU[2]

us

 

While TTIP has minimal effects on the USA and the EU, its effects on Turkey is considerably higher. The increase in GDP varies between 0.46 % and 3.8 %. The effect of TTIP increases as the terms of the agreement is getting more comprehensive on each scenario. The only noteworthy result is that the spillover effects reduces the effectiveness of TTIP. Since Turkey is already a trade partner of the EU by CUA, the cause might be that while the legislative alignments will increase the competitiveness of non-trade partner countries, those alignments will reduce Turkey’s competitiveness against non-trade partner countries. On the other hand, the exemption of Turkey from TTIP will negatively affect Turkey.

Table.3 Effects of TTIP on Turkey[2]

tr

Considering that Turkey`s participation will increase the benefit of TTIP for everyone and, the exemption of Turkey will have negative effects on both GDP and export, Turkey has to take necessary steps to be a part of TTIP.  The preliminary negotiation for a similar FTA between the US and Turkey has started.

On the other hand, that study showed that a decrease in non-tariff barriers will generate many more benefits for Turkey, than a tariff abolition. Since Turkey is exposed to non-tariff barriers by the EU, the CUA has to be moderated in a way to eliminate those barriers. Surely, within this period Turkey should align its regulations with the EU standards. Besides, Turkey has to negotiate to change relevant clauses of CUA in order to become a partner for further FTAs to be signed by the EU.

 

Bibliography

[1] Turkish Statistical Institute

[2] Gunes, D., Mavus, M., Oduncu, A., (2013), EU-US FTA and its effects on Turkey. Central Bank of Turkey

[3] Francois, J., Manchin, M., Norberg, H., Pindyuk, O., Tomberger, P. (2013) (2013) Reducing Transatlantic Barriers to Trade and Investment. London: Centre for Economic Policy Research.

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